Bailey: repeated shocks, leveraged bond buyers and AI exposure test resilience

Victoria Shinder09 October 2026, 08:022 min read

Bank of England Governor Andrew Bailey told the Istanbul Economic Forum, hosted by the Central Bank of the Republic of Türkiye, on 8 October that the financial system has so far weathered repeated shocks — but that weaker growth, frequent supply disruptions, rising government debt, leveraged markets and growing AI-related exposures mean resilience cannot be taken for granted.

What has held up. Banks remain well capitalised with no funding stress, and most markets kept functioning without a major breakdown in liquidity, even through significant rises in government bond yields. Bailey credits the reforms after the global financial crisis: "Those reforms are sometimes criticised as burdensome. Today, their value is clear."

What worries him.

• Repeated supply shocks. Covid, Russia's invasion of Ukraine and the Middle East conflict followed one another unusually fast. In a more multipolar world he says policymakers should prepare for large shocks not being rare. A supply shock pushes inflation up and output down; looking through it works only if expectations stay anchored, and quick succession makes that harder.
• Who buys government bonds. Markets once dominated by long-term "real money" investors now rely much more on leveraged investors, while demand for long-duration debt has fallen with changes in pensions and ageing. That has raised capacity to absorb supply but added fragility: leveraged positions can unwind fast, margin calls and stop-outs can force further selling, and the same funds hold positions across countries, so stress can jump markets.
• AI. Financing linked to AI has created new exposures. If earnings expectations or confidence in adoption were sharply revised, he says, the effects could run through equity, credit and sovereign markets — "AI safety and financial stability are therefore becoming increasingly connected."

What he proposes. Pursue sustainable growth (he sees AI, safely deployed, as a growth opportunity); keep monetary and fiscal frameworks credible — on rates, "I remain sceptical of unconditional promises about future interest rates", but central banks should explain how policy would respond in different conditions; and strengthen core markets through more central clearing, appropriate minimum haircuts and stronger risk management.

For sterling readers. The speech contains no signal on the next Bank Rate decision. Its weight is on the gilt market's structure: a governor naming leveraged buyers and minimum haircuts in the same speech is a pointer to where the Bank's financial-stability work is heading.

Source: Bank of England, speech by Andrew Bailey at the Istanbul Economic Forum, 8 October 2026 — https://www.bankofengland.co.uk/speech/2026/october/andrew-bailey-speech-at-the-istanbul-economic-forum-central-bank-of-the-republic-of-turkey-istanbul