Bank of England probes data-mining lending strategies fueling AI bets
The Bank of England is investigating the rise of financiers lending to data centers as a way to speculate on the future of artificial intelligence (AI), Bloomberg reported.
The UK’s top bank has already been examining market risks that could arise if AI companies fail to meet lofty valuations, warning that many could come crashing down in a correction reminiscent of the dot-com bubble in the early 2000s. Now, it is exploring the relationship between AI companies and financiers looking to place bets in the AI market, Bloomberg said on Friday.
Although lending to data centers is still a niche market, it is poised to become a crucial source of funding. According to McKinsey & Co, an estimated $6.7 trillion will be needed by 2030 to keep up with the rising demand to power AI.
Bloomberg reported that the investigation was launched after the Bank of England noticed an increasing amount of funds shifting from hiring staff to spending billions of dollars on constructing data centers. With few AI-native stocks available and crypto tokenization of private AI stocks not yet ready at scale, turning to data-center lending has become one of the few ways to place significant bets in the AI space.
### Hesitant with AI, Harsh with Crypto
The Bank of England’s probe suggests that this lending strategy may face future regulatory limits, potentially curbing returns and slowing AI innovation.
Meanwhile, UK crypto groups have criticized the Bank’s proposal to limit individual stablecoin holdings to between £10,000 ($13,310) and £20,000 ($26,620), calling it not only restrictive but also difficult and expensive to implement. While the Bank of England said it would not impose these restrictions indefinitely, UK banks have already implemented their own measures. About 40% of 2,000 surveyed crypto investors reported that their banks had either blocked or delayed payments to crypto providers.
### BOE Fears Data Center Lending Could Trigger Financial Instability
The Bank of England holds the view that these emerging lending practices warrant close scrutiny due to their potential implications for financial stability.
“If the projected scale of debt-financed AI and associated energy infrastructure investment materializes over this decade, financial stability risks are likely to grow,” the Bank said on Friday. “Banks would be exposed to this directly through their credit exposures to AI companies, as well as indirectly through their provision of loans and credit facilities to private credit funds and other financial institutions which are exposed to AI-impacted asset prices.”
As the AI sector continues to expand rapidly, the Bank of England’s investigation highlights the need to carefully monitor the financial ecosystem surrounding these new technologies to prevent instability.
https://cointelegraph.com/news/bank-of-england-probes-data-mining-lending?utm_source=rss_feed&utm_medium=feed&utm_campaign=rss_partner_inbound
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