FSB letter to G20 finance ministers on financial stability risks

The Financial Stability Board (FSB) has published a letter (dated 28 August) from its Chair, Andrew Bailey, to G20 Finance Ministers and Central Bank Governors, on the current risks to financial stability. While the financial system has continued to absorb the supply shock from the conflict in the Middle East, global markets remain vulnerable to a disorderly correction amid sovereign debt market fragilities, vulnerabilities in private credit and stretched asset valuations, particularly those linked to AI investments. The letter highlights concern that increasing leverage in equity markets, combined with high valuations, market concentration and AI-related cross-investment, could amplify future market stress. Mr Bailey also identifies frontier AI models as an emerging financial stability risk, particularly due to their potential impact on cyber resilience, and calls on authorities to support the safe and responsible release and deployment of such models. He further stresses the importance of robust response and recovery capabilities within financial institutions and resilience among critical third-party technology and service providers. He concludes that the FSB remains focused on identifying emerging vulnerabilities, strengthening resilience and ensuring that innovation is consistent with financial stability.

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