Fund flags rising debt exposure, vulnerabilities in banks and hedge funds, and growing cyber risks as potential triggers of widespread market disruption
The International Monetary Fund (IMF) has warned that a sharp decline in artificial intelligence (AI) investment, a sudden surge in government bond yields and major cyberattacks pose three significant threats to global financial stability, cautioning that their simultaneous occurrence could trigger widespread disruption across financial markets.
In its latest Global Financial Stability Report, titled Resilience, Risks, and Transformation, presented in Bangkok during the IMF and World Bank Group annual meetings, the Fund said financial vulnerabilities remained elevated amid growing reliance on borrowing, rising government debt and increasingly interconnected financial institutions and investors.
The IMF cautioned that markets could face mounting pressure if these risks materialised together, despite their continued resilience so far. The report highlighted the growing exposure of global investors to US assets, particularly those associated with artificial intelligence, as a potential channel through which financial stress could spread internationally.
IMF Deputy Director of the Monetary and Capital Markets Department Athanasios Vamvakidis said global exposure to US assets, particularly AI-related investments, had reached unprecedented levels, warning that a significant decline in their value could have far-reaching consequences for financial markets.
AI investment boom raises market vulnerability
The Fund warned that a slowdown in AI investment or a failure by technology companies to deliver expected profits could trigger a sharp correction in technology stocks, with losses spreading to bond markets and financial institutions.
The growing use of debt to finance AI infrastructure has added another layer of risk. According to the report, major technology companies developing AI infrastructure now account for approximately 10 percent of global investment-grade corporate bond issuance, compared with less than one percent in 2024.
This expansion reflects the sector’s increasing dependence on debt markets and raises concerns about the potential impact on lenders and investors if anticipated returns fail to materialise.
Cyberattacks threaten financial infrastructure
The second major threat stems from the possibility of a sudden increase in government bond yields, driven by higher energy prices, inflationary pressures and mounting public debt. Such a development could raise government borrowing costs and make debt refinancing more expensive, placing additional pressure on public finances and financial institutions.
Although bond markets have absorbed these pressures without major disruption so far, the IMF warned that underlying vulnerabilities remained and could intensify if further economic or financial shocks occurred. The third risk concerns increasingly sophisticated cyberattacks capable of disrupting financial systems and spreading instability across markets.
The report found that software developers had insufficient time to address security vulnerabilities before they were exploited in more than 70 percent of recorded cases in 2026, an increase of 20 percentage points from the previous year.
The IMF warned that an attack against a major financial institution or critical technology service provider could interrupt transactions and rapidly transmit disruption to other institutions and markets. Advances in AI technologies could further increase the sophistication of cyber threats.
Banking resilience faces potential stress
The IMF said global banks generally continued to maintain strong capital positions, but its stress tests revealed potential weaknesses under a severely adverse economic scenario. Banks accounting for 22 percent of total global banking assets could face capital shortfalls under such conditions, compared with 18 percent in the 2025 stress tests.
The findings highlight the importance of monitoring financial institutions’ ability to withstand severe economic downturns and market shocks. The report also examined the growing role of hedge funds in global financial markets. Their gross assets have reached approximately $13 trillion, while their aggregate notional exposures have climbed to around $40 trillion.
The Fund warned that heavy reliance on leverage and simultaneous asset sales by hedge funds could amplify market volatility and intensify financial disruptions during periods of stress.
Another chapter examined the expansion of financial asset tokenisation, which involves representing assets digitally to facilitate trading and settlement. While the technology could reduce transaction costs and accelerate settlement, the IMF cautioned that it also introduces liquidity risks and new channels through which financial shocks could spread between institutions.
IMF urges stronger oversight and debt discipline
The Fund called on governments and regulatory authorities to strengthen oversight of nonbank financial institutions, monitor leverage and bond-market vulnerabilities, reinforce protection against cyberattacks and take steps to restore public debt to sustainable levels.
The warnings come as policymakers, financial officials and investors gather in Bangkok for the IMF and World Bank Group annual meetings, being held from October 12 to 18. The meetings bring together thousands of economic and financial representatives to discuss global challenges and explore ways to strengthen monetary and investment cooperation.