Central Bankers Want a Kill Switch for Rogue AI Before It Short-Circuits the Financial System ⚡

European and British regulators warned at the European Central Bank's annual forum in Sintra, Portugal, on Tuesday that agentic artificial intelligence could amplify volatility during periods of market stress and called for guardrails analogous to trading circuit breakers. Bank of England deputy governor Sarah Breeden questioned whether such guardrails should be built "analogous to circuit breakers or kill switches that would limit or stop trading market-wide if faulty AI models cause market meltdown," in remarks delivered at Sintra. ECB President Christine Lagarde told French outlet Les Echos on Thursday that AI poses a "major risk," noting that "with the acceleration and deepening of AI models, we are confronted with a much more serious risk, because it is happening very, very quickly, and because the means of defense — and the funding required for them — have yet to be found."

UK Financial Conduct Authority CEO Nikhil Rathi said on CNBC's Squawk Box on Thursday that traditional rulemaking cycles cannot keep pace with AI development, which now moves in "weeks or months." He called for "new tools and a different way of working with the market in a more collaborative way." European officials also flagged that US companies lead in AI investment and frontier model development and that regulating too cautiously could widen the transatlantic gap, as AI firms may relocate to jurisdictions with lighter compliance requirements.

The Bank for International Settlements warned on June 28 that AI "exuberance" could have major financial consequences, saying that if central banks tighten policy to contain inflation, a "sharp pullback in [AI] asset prices after a prolonged period of exuberant risk-taking" could trigger "disruptive macro-financial feedback loops." Breeden added that debt financing for AI is rising rapidly and that "the financial stability consequences of any fall in AI-related asset prices could well increase." Tobias Adrian, Director of the IMF's Monetary and Capital Markets Department, has separately highlighted AI-related stability concerns. Separately, the US has lifted certain export controls, and Anthropic has said it will bring back a model referred to as Fable 5. Central bankers, particularly in Europe, have previously raised similar concerns about crypto's potential to disrupt the traditional financial system.