Bailey's G20 letter names bonds, private credit and AI

The Financial Stability Board on Monday published a letter from its chair, Andrew Bailey, to G20 finance ministers and central bank governors that points to heightened volatility in sovereign bond markets, vulnerabilities in private credit and risks related to artificial intelligence, the FSB said. The letter is dated 8 October and was written ahead of the ministers' meeting on Thursday 15 October in Bangkok. Bailey is also Governor of the Bank of England.

The letter presents its risks as those Bailey "highlighted" in August rather than new ones. It lists "heightened volatility in sovereign bond markets and structural changes in the investor base that increase the risk of abrupt market adjustments and disorderly deleveraging"; private credit vulnerabilities from "tighter financing conditions, liquidity mismatches, valuation uncertainty, opacity and growing complexity"; and AI risks, including "the potential for a market reassessment of AI-related valuations to trigger a broader market correction" and "increasingly sophisticated AI-enabled cyber threats" to financial institutions and market infrastructure. The FSB gives no new figures for any of them.

The August version was sharper. That letter, dated 28 August, warned of a "potentially disorderly correction" and cited "elevated issuance, shortening maturities, and the increased use of leverage" in sovereign debt markets, as well as rising leverage in equity markets. The FSB said at the time that the potential impact of frontier AI on cyber risk was "the most immediate concern". The October letter does not repeat the frontier-model language, but it keeps the cyber point.

The concrete AI deliverable is the FSB's Sound Practices for the Responsible Adoption of AI by financial institutions, which Bailey calls the board's "first response on this topic". They "have been designed as a toolkit, adaptable to the size, type, and level of AI adoption within financial institutions", he wrote, and span organisation-wide governance, lifecycle management, cyber risk mitigation and management of third-party services. "To foster responsible adoption, I urge the G20 to champion these practices," he wrote. The FSB said the final version incorporates feedback from its public consultation.

That consultation opened on 10 June, 124 days before Monday by our count. The draft set out 12 practices and said they were "not intended to establish an international standard" or to impose a prescriptive approach, and were not developed to address risks emerging from frontier AI models, although some would help. Michelle Bowman, the Federal Reserve's Vice Chair for Supervision, who chairs the FSB committee behind them, said then that the report "establishes clear safeguards for financial institutions to adopt, innovate, and use AI responsibly". The final text was not among the publications on the FSB's site when Komposite checked on Monday, so the changes since June cannot yet be compared.

Bailey's letter also concedes the limits. The practices will help individual firms, he wrote, but "there are broader macroprudential issues that may warrant continued consideration and coordination", meaning system-wide effects that firm-level guidance does not reach. The FSB said safe adoption of AI will remain "an important feature" of its agenda next year.

The letter introduces four other deliverables requested by the US G20 presidency: a note on cross-border stablecoin vulnerabilities, a consultation on regulatory and supervisory modernisation that will be finalised in 2027, a review of how the FSB's policy design supports implementation, led by its former chair Randal Quarles, and a peer review that found gaps in public backstop funding for banks in resolution. "I call on G20 members to work with us," Bailey wrote of the last.

For financial firms the practical weight is limited by design. The FSB coordinates national authorities and standard-setters, and its own documents state that its decisions are not binding. The sound practices will matter to the extent that supervisors cite them, and Bailey's request that the G20 "champion" them is a request, not a mandate.

The stablecoin note is covered in our report on the FSB's warning that global stablecoins are untested in a crisis. Komposite reported in September that the Treasury sell-off had reached the thirty-year bond, and on how data-centre debt is spreading through private credit, two of the conditions the letter describes.