The Bank for International Settlements (BIS) said in its latest quarterly assessment that the ongoing AI investment boom is driving a rapid rise in leverage and hidden debt across financial markets, with some risks building up beneath a surface of market calm.
The BIS said highly leveraged hedge funds are moving deeper into core financial markets. If asset prices reverse, a pullback in liquidity could magnify market swings.
Frank Smets, the BIS head of economic analysis and statistics, said cross-market leverage is especially concerning. He pointed to a recent case in which a hedge fund with heavy AI exposure was hit with margin calls after asset valuations fell and was forced to transfer core stock positions to Citadel, a sign of how vulnerable leveraged capital can become when markets turn.
Debt tied to the AI theme is also expanding quickly. According to the BIS assessment, private credit borrowing by technology companies increased from about $22 billion in 2010 to more than $1 trillion in 2025. The sector’s share of total private credit rose from 22% to 44%. When other loans are included, outstanding debt in the technology industry is close to $2.5 trillion.
The BIS also said some AI financing may involve off-balance-sheet structures and circular funding flows, which could add to broader financial system risks. It warned that the absence of widespread panic in markets does not mean those risks have disappeared. If bond yields keep rising and fiscal pressure continues to grow, vulnerabilities in highly leveraged assets could surface quickly.
Separately, the BIS said central banks around the world have become increasingly reliant on complex core inflation indicators in policy communication over the past 20 years, which may make it harder for markets to judge the future path of interest rates.