BIS chief warns AI capex arms race relies on opaque debt, posing systemic risks

Pablo Hernandez, head of the Bank for International Settlements, cautioned that heavy investment in AI infrastructure appears to be funded in part by debt arrangements that lack transparency. He argued that such financing can obscure risks and make the broader financial system more vulnerable. Hernandez drew parallels between current AI spending patterns and earlier episodes of speculative investment, pointing to historical railway booms and the dot‑com era as precedents. In those past cases, enthusiasm and capital flows outpaced the emergence of sustainable profits, setting the stage for sharp corrections. The BIS chief singled out the role of opaque debt as a mechanism that can amplify these tensions: when borrowing pads rapid investment but the revenue needed to service that debt does not materialize, losses can cascade beyond individual firms. That dynamic, he warned, raises the prospect of systemic stress rather than isolated corporate setbacks. By highlighting these risks, the BIS leader signaled that regulators and market participants should pay attention to how AI-related projects are financed. Absent clearer financing structures and attention to profitability, Hernandez suggested, the current spending surge could end with broad economic adjustments similar to those seen in past bubbles.