Fed official warns: AI industry could become too big to fail

Jeff Schmid, who heads the Federal Reserve Bank of Kansas City (part of the US central bank), says it should be examined whether the AI industry is becoming "too big to fail," meaning so large and important that the government would have to rescue it if something went wrong.

Schmid says: "Where we need to start understanding what's happening with AI and the data center buildout is whether we're moving toward an AI ecosystem that's too big to fail."

He draws a direct parallel to the 2007-2009 financial crisis, when large banks were so connected to the rest of the economy that the government had to rescue them with taxpayer money to avoid a total collapse.

The background is the enormous wave of investment in AI. Tech giants are spending staggering sums on building data centers, and this creates close ties between AI companies, chipmakers, energy companies, construction firms and lenders. The more intertwined it all becomes, the greater the risk that problems in one place spread to the rest of the economy.

Schmid stresses that he is not proposing specific new rules right now. Instead, he is calling for the central bank and other authorities to seriously examine what actually lies behind the AI boom, and whether there are systemic risks, meaning risks that can spread and hit the entire financial system, not just individual companies.

For ordinary Danes, this means nothing urgent, but it is a signal that even central banks are now taking the AI bubble seriously as a possible danger to the economy, just as banks and the housing market were monitored in the past.