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The Guardian World1 min read
Central bank bosses enlist for war game to gauge threat of Lehman-style bust
TL;DR
Central bank leaders from the UK, US, and EU will participate in a war game in Washington to assess responses to a potential bank collapse. The exercise aims to address rising concerns over global financial stability amid risks from AI and market disruptions.
Key points
- Central bank leaders from UK, US, and EU participating in war game
- Exercise aims to test responses to bank collapse
- Concerns over global financial stability rising
- Risks include AI, private credit lending, and US-Israel war
- Event coincides with IMF and World Bank spring meetings
Mentioned in this story
US Federal ReserveEuropean Central BankBank of EnglandAndrew Bailey
The bosses of the central banks and treasuries of the UK, US and EU are to take part in a war game in Washington on Saturday to test how they would handle the collapse of a globally significant bank.
Amid growing unease over the risks to global financial stability, the most senior officials from the US Federal Reserve, the European Central Bank and the Bank of England – including its governor, Andrew Bailey – are expected to take part.
In a so-called “desktop” stress test, behind closed doors in the US capital, the exercise will include the authorities wargaming how they would respond to another Lehman Brothers-style collapse.
It comes as banking regulators from around the world sound the alarm over the growing risks to financial stability from AI, risky private credit lending, and potential disruption in markets linked to the US-Israel war on Iran.
Finance ministers, executives and regulators discussed the potential risks as they gathered in Washington for the International Monetary Fund and World Bank spring meetings this week, including warning that the latest AI models from US tech companies could pose serious threats to financial stability.
It comes amid fears over the capabilities of the US tech company Anthropic’s Mythos AI model, which experts warned last week posed an unprecedented risk because of its ability to expose flaws in IT systems.
Bailey, who also chairs the Financial Stability Board of global regulators, said such risks could threaten banks. “It is a very serious challenge for all of us. It reminds us how fast the AI world moves,” he said.
It is expected that the senior officials from the US, UK and EU will stay on in Washington after the end of the IMF meetings for the wargaming exercise, which is to be held at the offices of the Federal Deposit Insurance Commission (FDIC) – the organisation that guarantees US bank deposits.
The FDIC, which called the event a “trilateral principal level exercise,” said the meeting would be used to coordinate how multiple regulators would respond to the collapse of a global bank. It did not disclose the details of its stress-test, or if it included an assessment of cyber risks.
Q&A
What is the purpose of the central bank war game in Washington?
The war game aims to test how central bank leaders would respond to the collapse of a globally significant bank, similar to the Lehman Brothers incident.
Which central banks are involved in the stress test exercise?
The exercise involves the US Federal Reserve, the European Central Bank, and the Bank of England, including its governor, Andrew Bailey.
What risks are prompting this war game among financial leaders?
The war game is prompted by concerns over financial stability risks from AI, risky private credit lending, and potential market disruptions related to the US-Israel conflict.
