A sharp drop in AI stock values could trigger a broad equity market correction and shave up to about 2.2 percentage points off UK GDP, with spillover effects beyond Britain.

The FPC will conduct a review to assess whether the proposed changes create stability gaps, with findings due by September and a consultation package planned for early 2027.

There has been unprecedented investment in AI, including heavy private credit funding for AI firms, raising concerns about rising leverage in the sector.

The Bank of England warns that rapid AI advances are heightening financial stability risks, notably through cyber and operational vulnerabilities in AI systems and higher valuations in the AI sector.

The BoE’s Financial Policy Committee proposes loosening certain post-crisis capital rules, including a new framework that would reduce leverage requirements for large domestic-focused UK banks by roughly 0.2 percentage points, with some variation by institution.

Nevertheless, the BoE warns that multiple financial stability issues could crystallize simultaneously, even as resilience remains.

The BoE supports measures enabling banks to reduce capital more easily after a crisis to sustain lending, while maintaining overall system resilience.

Some FPC members warn that reducing buffers could raise market-based leverage and amplify risks in core UK financial markets and system resilience.

The BoE calls for bespoke regulation of agentic AI, noting that traditional frameworks may not cover autonomous AI actions.

The Financial Stability Report highlights heightened vulnerabilities tied to risky assets and private credit in 2026, with geopolitical uncertainty from the Middle East intensifying global risks.

In particular, the FPC signals scrapping parts of the leverage ratio buffer to benefit major lenders such as NatWest, Lloyds, Nationwide, and Santander UK.

Despite elevated risks, the BoE says UK lenders and consumers are broadly resilient overall.