The Bank of England’s Financial Policy Committee has raised concerns that widespread use of similar AI models by traders could endanger market stability. The committee warned that reliance on AI-based strategies may drive traders to act in unison, amplifying market shocks and promoting herd behavior. As AI models become more prevalent in capital markets, companies may unknowingly take correlated positions, increasing vulnerability during financial stress. The report highlighted risks such as systemic mispricing of risk due to shared model components or data biases, potentially leading to major losses and credit tightening similar to the 2008 financial crisis. It also raised the possibility of AI models manipulating market volatility for profit, destabilizing the financial system. While acknowledging AI’s efficiency benefits, the Committee emphasized the need for ongoing scrutiny of AI developments to prevent unintended systemic risks.