BOE's Bailey Talks AI Risks, Private Credit and Crypto

Added: 2026-06-01

[00:00:00]At this conference, we did have an opportunity to to hear from you and talk to you about monetary policy this morning.

[00:00:05]But there's also been a lot of conversation about AI and the potential impact on the economy of AI, but also the cyber security risks associated with new AI tools. And of course, most recently, the one we've been hearing about worrying about is mythos.

[00:00:22]Can I just confirm, have UK banks got access to mythos now?

[00:00:25]Are they getting it on that trial basis so they don't have access to mythos at the moment? And that's a that's an issue that is very important. And by the way this is a very important development. But there are other models out there.

[00:00:36]I mean, mythos isn't the only model out there.

[00:00:38]There's obviously something of a race going along to to move the technology on. And, um, you know, I'm very optimistic that they are either by other just have or about to get the major UK banks have access to other models which will get them substantially.

[00:00:53]But just going back to the mythos. So because we had a story and I think the anthropic UK and Northern Europe's head, the company that owns it, makes missiles. Um, they told Bloomberg last month that it would be within a week that UK bank chiefs were going to be able to be part of that, the glass ceiling project. So do you know what happened?

[00:01:11]Well, there was a yes. So there has been a glass swing phase two, uh, been talked about really for the last six weeks or so, but it hasn't happened yet. Uh, and I think this has been somewhat caught up in the process with the U.S. administration.

[00:01:27]So sort of just reading between the lines, it sounds like anthropic had certainly told us on Bloomberg Television that, uh, it was going to be just a matter of days or a week or so. And it's the US administration that has potential. Well, we're not party to that process.

[00:01:39]I think to be fair to anthropic, I think they you know, they have been working very hard. They want, uh, you know, access to two critical parties. Uh, and it's very important that still, you know, I think actively seeking that, uh, quite why the process is a bit different from one company to another. I'm afraid I can't explain to you.

[00:01:58]Uh, obviously, from our point of view, given, you know, our concern about the risks involved in this. It's very important that there is access. And, you know, we what I really want to see is there is evolve a process very quickly where we can have a sort of controlled but fast process to assess these models and frankly, as to what what my head of say at the Bank of England told me is a ton of patching that then has to follow very quickly to fix the things that these models are finding. And I guess, and as part of this conversation, I guess we also think about the conversations I have.

[00:02:31]But I get nervous is when they also talk about the open source.

[00:02:33]The companies that are a bit behind the way they get users is to have open source, which means if you discover that the so-called bad guys are using that technology to rob banks or whatever it is, you're then not able to turn it off in the way you can with the others. Well, look, I'm not speaking as an expert on this subject, so I have to be an expert.

[00:02:53]Well, yeah, we we try to learn quickly. Um, I think two things that I've taken from the many discussions we've had. One is that I think if you have kept your cyber defenses up and better prepared, you will go into this process in a better place. And if you haven't, and we've worked very hard with the UK banks over many years.

[00:03:12]Um, I will go on doing so. Secondly, I think you're right on the open source point. Now, I think the what I think, what anthropic is certainly saying is that open source is more of a vulnerability than, uh, closed. Uh, and that's certainly a conclusion they've drawn from all the work they've done now.

[00:03:30]I mean, the two things, I think, however, one is there's a lot of open source out there. Uh, two.

[00:03:37]Um, again, I'm not an expert in this field.

[00:03:39]There's a lot of almost theological, um, you know, doctrine about open source and not open source, which this is somewhat pushing against. So, yeah, I think because we tended to say there's been this sort of inclination towards open source, but in this case it feels like it's more it's being questioned.

[00:03:57]I mean, does it highlight sort of overall the risks of I mean, going back to the anthropic thing of having us owned companies being absolutely dominant in this space and actually UK banks, you being in the position of kind of going begging to the Americans to get access to it.

[00:04:12]Well, I don't take your position on it where the sort of in a sense, the companies are sort of developing these things because this is this is a very, very big development and it's actually very important.

[00:04:24]And there are many good things that will come out of this.

[00:04:27]What I would say is that the spillovers from this sort of some cyber risk, uh, are so big that we can't just have a, you know, single sort of national approach towards, uh, dealing with the consequences and mitigating it.

[00:04:42]There's got to be an international approach to this.

[00:04:44]It's got to be a sensible, sort of firmly based international process, because I think anybody who thought, well, I've dealt with my banks, that's okay. I'm afraid that won't work because they're all so heavily interconnected. We've got big payment systems, big messaging systems, uh, so that that approach won't work.

[00:05:02]Now, as chairman of the Financial Stability Board, you obviously involved lots of discussions around sort of global efforts on financial stability and looking for risks. And one area again, where people are looking nervously at the US in particular, is the run up of private credit and whether there should be a more of a sort of a tougher approach to at least having, um, more reporting requirements or other things on private credit. You've highlighted that a lot of traditional banks and institutions are now very much intertwined with private credit. Is that I mean, are you getting a hearing on that from the US in terms of the risks of that?

[00:05:34]Excuse me. Yes.

[00:05:34]I think, um, look, first of all, private credit is playing an important role.

[00:05:38]I think it's a good thing. Um, let's come back to I for a moment.

[00:05:42]We've got a very big investment, uh, demand coming on for it to support the innovation. And I and in the tech sector more broadly, and private, private credit is an important part of meeting that demand. And that's a good thing.

[00:05:57]What I think, you know, I think we have to look carefully at is the word private can be misleading in some ways because it is not an island on its own.

[00:06:05]It is connected into the into the system, into the broader system.

[00:06:08]A lot of the underpinning liquidity will come from the banking system.

[00:06:12]It is connected into the banking system. And that's not bad.

[00:06:14]That's inevitable. So it's very important that we understand those those interconnections. How they work.

[00:06:21]All of their points of sort of fragility in there.

[00:06:23]That's why at the Bank of England, we're doing the second system wide exploratory scenario to follow on the one we did on hedge fund activity in major government bond markets a couple of years ago. So that's the first thing.

[00:06:34]The second thing I think is important is, and I think this is particularly true with the spread into sort of so-called retail investment, is do the investors understand the assets they've got and the characteristics of those assets? Because there are clearly, you know, there are some signs of strains in the markets.

[00:06:54]I think they're often described as idiosyncratic.

[00:06:56]Okay. Every every incident will have a different story attached to it. But we are seeing some some increase in requests. Quite a big increase in requests for outflows to take liquidity out. And I think how that plays out will depend on what investors think. They think well thought they had relative to what they sort of now think they've got.

[00:07:16]Just to run through that, another area where you've got quite a big distinction now between the UK and the US, or at least there has been in the proposals you have put forward was for stablecoins and the basic approach you've had towards them. Um, are you now scrapping the idea of capping the amount of stablecoin that individuals and businesses can?

[00:07:34]Well, we've looked again at that for the UK, for the UK.

[00:07:36]Um, and we'll be coming up with uh, proposals shortly before the summer.

[00:07:42]So it's still because it was supposed to be in June.

[00:07:44]I said, I'm expecting more before the sort of summer holiday season takes off for us. Uh, we'll we'll get that out.

[00:07:51]If you're able. Are you looking at the sort of looking at total issuance sort of limits instead of.

[00:07:56]That would certainly be an option. Uh, let's see when we get to, um, I think the other thing that I would emphasize with stablecoins is just to put the global hat back on again, is that we are all going to have to have sort of what I call sort of rules of the game, as it were, for the use of stablecoins cross-border. Uh, and, you know, we are going to be approaching the point when we really do need to sort of get seriously to work on that side of things, because that's going to be important because, again, you know what I always say, what we want to get the benefits of is digital technology and all the benefits that will bring with it, whether it's in the payment system, that you can do that in all sorts of ways. You can do it for central bank digital currency. You do it for tokenized deposits.

[00:08:38]But if it's stablecoins, uh, I don't think we should be in any sense, sort of, you know, biased in our approach to that.

[00:08:45]But they're all going to have to be sort of rules of the road as well.

[00:08:48]But you've been saying something similar to that in various ways, you know, for, for a while. Yes.

[00:08:53]And it doesn't seem like there's any appetite on the other side of the Atlantic to have rules of the road or really very many limits on this part of the market at all they see is a big competitive advantage for the US.

[00:09:05]Yes. I mean, but I think, look, I think the rest of the world is going to take a different view on that.

[00:09:10]And on the digital currencies, the central bank, digital currency again, the US is now gone out of its way to ban in the Genius Act, to ban the US, the Federal Reserve, from having producing a digital dollar, a retail.

[00:09:24]Will there ever be a Bank of England will be a digital pound?

[00:09:27]Well, I so look we continue to work on it and it's very important we do because it helps us to understand the sort of the underlying technology.

[00:09:34]For me, I know I'm probably the sort of noted, skeptical end of this distribution is I think that for me, the question is this do we need to create a new form of central bank money to satisfy this need to have digital technology in the payment system?

[00:09:50]And look, this is a point we've discussed with the UK banks.

[00:09:52]Um, said, look, you know, most of the stock of money is in your accounts.

[00:09:57]If you think about, you know, commercial bank money, they've got most the money.

[00:10:00]There's a stock of it in the central bank.

[00:10:03]Um, so I would say the natural starting point here is, is to explore the tokenized deposits. That is what is going on both domestically and internationally. Uh, UK banks are looking at it because we, you know, we got ahead in the UK 20 years ago with faster payments.

[00:10:20]Technology has moved on. We've got we've got to move on.

[00:10:23]And then internationally, you you might have seen the other day there was news of a test of the so-called project that Agora which to be is running, which we're involved in, which I think is a good thing, because that gets to the other big issue, which is how can we improve cross-border payments?

[00:10:37]Because I've always described that's sort of the land that time forgot.

[00:10:40]I have to I'm pushing you because I well, there's one last question.

[00:10:42]We've had we've had some quite a lot of the central bankers here have been sort of somewhat bragging about the number of, uh, AI tools they have on their own computers and how they're using it. We're obviously using I, our economist team, are using I on on what the Bank of England says.

[00:10:56]And we're judging whether or not it's, you know, direction of travel.

[00:10:59]How are you using it. Well, we do um, we do.

[00:11:01]So we're We're growing in our use of it. Um, we, you know, we use it obviously, for data. You know, data.

[00:11:07]We use it for, for coding, uh, speeding things up.

[00:11:11]But we do use it in the MPC. We've we've experimented with the, uh, stuff with, with modelling and also, you know, we we do start to use it to use things like language models to say, well, if you write the MPC minutes like this, how might it be received? So this is this is terrible.

[00:11:29]So we've not going to have a we're going to have a sort of spiral because we are using it. We have we know you're using this.

[00:11:35]We have developed our own economists. Yes.

[00:11:37]We've we've noted. So we've done all you've done yours.

[00:11:40]The whole thing is almost completely against your model.

[00:11:43]Um, well, that's the way the world, um, that's the way of the world.

[00:11:46]But it's I mean, it's helpful to us because it does occasionally throw things up and it says, look, if you do this, if, I mean, this is what's not this is not about voting or anything. This is about words.

[00:11:58]This is how we received governance. It's I what you wanting.

[00:12:01]All right. That's all this stuff.

[00:12:02]Thank you very much.