SYDNEY, Oct. 1 (Xinhua) -- The Reserve Bank of Australia (RBA) on Thursday warned that the rapid development and adoption of artificial intelligence (AI) could pose risks to financial stability.
The central bank said in its semi-annual Financial Stability Review that the rapid advances in frontier AI capabilities, together with broader technological developments, are reducing the cost and technical expertise required to conduct sophisticated cyber-attacks against financial institutions and financial market infrastructures.
It noted that before AI's potential to support productivity growth and strengthen operational resilience is fully realized, its rapid advances could worsen the cyber threat landscape and increase the likelihood that underlying operational vulnerabilities could be exposed.
Separately, AI-related investment and financing could create financial stability vulnerabilities if the scale and pace of investment continue to grow in the coming years, it said.
The RBA said that AI-related companies are increasingly using debt to fund large-scale projects, increasing the exposure of investors in private and public markets to the sector.
"With the industry rapidly issuing large volumes of debt, its importance in public and private credit markets is expected to grow, mirroring the trend observed in equity markets and expanding the range of investors exposed to the AI investment boom," it said.
Meanwhile, off-balance-sheet financing through special purpose vehicles is becoming an increasingly common way to fund large AI infrastructure projects, which could create hidden exposures and opaque interlinkages.
The RBA said that considerable external financing of AI-related investment would increase credit exposures across banks, bond markets, private credit and other institutional investors if capital expenditures grow in line with current market expectations.
However, the bank warned that long-term earnings projections assume broad adoption of AI technologies and strong revenues, while the timing, scale and distribution of these benefits remain uncertain.
"If returns fall short of expectations, several features of the AI investment boom could potentially lead to losses among lenders and investors," the RBA said. ■