ION expands ETF trading capabilities with Tradeweb integration
Investing.com -- The Bank of England’s Financial Policy Committee (FPC) has warned that risks to UK financial stability have increased during 2025, citing elevated global risks, stretched asset valuations, and growing concerns about sovereign debt levels.
In its December Financial Stability Report, the FPC highlighted that many risky asset valuations remain "materially stretched," particularly for technology companies focused on artificial intelligence. US equity valuations are approaching levels not seen since the dot-com bubble, while UK valuations are at their highest since the global financial crisis.
The report identified AI infrastructure investment as a growing concern, with industry estimates suggesting spending could exceed $5 trillion over the next five years. While large tech companies will fund much from operating cash flows, approximately half is expected to be financed externally, mostly through debt.
"Deeper links between AI firms and credit markets, and increasing interconnections between those firms, mean that, should an asset price correction occur, losses on lending could increase financial stability risks," the report stated.
The FPC also warned about two recent high-profile corporate defaults in the US that exposed weaknesses in risky credit markets, including high leverage, weak underwriting standards, and opacity. While the direct impact was limited, the committee cautioned that market participants should ensure robust risk management and not over-rely on credit ratings.
Public debt-to-GDP ratios in many advanced economies have continued to rise, potentially constraining governments’ capacity to respond to future shocks. The FPC noted that significant economic or fiscal shocks could be amplified by vulnerabilities in market-based finance.
Despite these concerns, the UK banking system remains well capitalized, with the 2025 Bank Capital Stress Test demonstrating that banks could continue supporting the economy even under severe stress. The FPC has reduced its benchmark for system-wide Tier 1 capital requirements from 14% to 13% of risk-weighted assets.
The committee maintained the UK countercyclical capital buffer rate at 2%, noting that while the global risk environment remains elevated, UK household and corporate aggregate indebtedness remains low.