Bailey defends independence and flags AI valuation risks
Bank of England Governor Andrew Bailey said central bank independence requires accountability to the whole public. Speaking at Zurich University, he defended post-crisis regulation and identified four channels through which AI valuations face financial stability risks.
Independence rests on public legitimacy
At the Swiss Institute of International Studies lecture series, Bailey said supply shocks from conflicts in Europe and the Middle East raise inflation while weakening activity.
AI investment, particularly in business services, is helping UK activity prove more resilient than anticipated.
Independent central banks must return inflation to target while serving the whole public, he said; Switzerland has experienced more subdued inflation.
Bailey described monetary and financial stability as inseparable, but said financial stability decisions face stronger lobbying than rate decisions.
With crisis memories fading, he warned against overlooking how post-crisis regulation helped the financial system withstand recent shocks.
Four vulnerabilities behind AI valuations
Bailey identified four ways an AI asset-price bubble might unwind: markets overvalue future returns; returns arrive later than anticipated; valuations assume every firm wins; or public trust deteriorates.
He cited Edison and electricity as examples of delayed technological returns and Netscape as a reminder that not all firms succeed.
Hayek, Keynes, Marx and Schumpeter illustrated differing perspectives on the links between growth, business and public policy.
Frontier AI also increases cyber-attack risks, he said.
Trust requires human control
Bailey argued that AI's productivity potential depends on maintaining public trust.
He called for more extensive testing before and after release, better incident reporting, monitoring and follow-up.
Assured human intervention, including different intervention points where needed, anchors his proposed response.
Source: Central bank independence in today’s world
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