RISK

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When the woman who was chair of the FDIC during the 2008 global financial crisis says she’s seeing cracks in the economy, maybe it’s time to listen.

“I’m nervous, to be honest with you,” Sheila Bair told attendees on October 14 at the National Association of Corporate Directors’ annual summit in Washington, DC, listing factors such as a regulatory system that’s too big-bank-focused, an AI investment “bubble,” and private credit as reasons why.

Specifically with regard to banking, Bair said one measure of bank capital strength, the leverage ratio, has “dropped about down to where it was in 2009.” The weakening of rules about how much capital banks need to hold won’t help, she added.

“The Fed has got yet another series of rules that’ll probably be finalized in December to erode bank capital even more, and I don’t understand why,” she said. “The stated reason has been to expand lending, but we have inflation right now.”

If banks release another “extra couple of trillion of lending capacity, that’s going to be inflationary, and they’re going to be looking to take more risks, because the creditworthy borrowers are pretty much getting the credit they need right now,” Bair added. “So that worries me a lot.”

The US government doesn’t have the fiscal capacity for a massive stimulus this time around, Bair said.—CV

      

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LLMs are advancing fast—maybe faster than anyone can effectively track. So how, realistically, can AI be governable? And will voters have a chance to speak on this issue with US midterms just around the corner?

The question of AI oversight cuts across party lines. It affects everyone, and even state-level policies could have global implications.

Dr. Alondra Nelson joins The Intelligence Shift to discuss how she approached crafting the AI Bill of Rights for the Biden administration and what good policy goals can look like for AI. Plus, tech policy expert Jessica Melugin makes the case for caution when it comes to setting new precedents.

And as a bonus, host Dan Priest becomes a man on the street to speak with New Yorkers about their priorities with AI ahead of the midterms.

Tune in to the episode here.

BORROWING

Morning Brew, Inc.

Apparently, “all the money in the world” gets a little harder to find when the debt you already issued is flashing distress.

CoreWeave hopes to eventually earn an investment-grade credit rating, giving it access to much deeper pools of insurance money, co-founder Brannin McBee told the Financial Times this week in a quote he probably wishes he could take back.

The AI cloud-computing giant has relied heavily on debt to fund its breakneck expansion, just as investors are questioning how much more leverage the funding model can support. CoreWeave shares plunged as much as 17% Wednesday, while bonds due in 2032 sank to roughly 78 cents on the dollar. The cost of insuring its debt now implies about a 63% chance of default within five years, S&P Global data found.

The result isn’t your ordinary AI stock sell-off. Instead, it’s turned one of AI’s fastest-growing infrastructure companies into a stress test for a much bigger question hanging over the boom.

Financing the AI buildout with debt may get too expensive, Brew Markets reports.—HC

      

REGULATION

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The Public Company Accounting Oversight Board (PCAOB) recently released updated agendas for standard-setting, research, and rulemaking activities after a “first-ever” public comment period.

The updated plans include standard-setting projects on multiple topics, including “auditor independence, fraud, noncompliance with laws and regulations, and going concern; research projects on data and technology, firm and engagement performance metrics, and communications with audit committees,” the PCAOB said in a release.

So what’s the difference between the PCAOB’s agenda and its 2026–2030 strategic plan, which we heard so much about over the summer? While the strategic plan deals with high-level goals of the board—like “modernizing inspections and registration, including placing more emphasis on firms’ quality control (QC) systems,” as CFO Brew previously reported, the agendas “translate those goals and objectives into specific standard-setting and research initiatives,” according to the PCAOB.

Among the research projects related to data and technology on its agenda, the board intends to examine “how auditors and companies are using new technologies and how those technologies may affect audit quality.”

The Big Four said the audit overseer should tread carefully with any standard-setting on AI.—AZ

      

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market forces

Francis Scialabba

Today’s top finance reads.

Stat. 60 mph. That’s the speed that Tesla’s long-awaited Roadster can reach in less than a second. The Roadster also has small rocket thrusters. Yes, we may have flying cars now. (CNBC)

Quote. “I don’t prejudge meetings. I don’t believe in saying now what I might do at the meetings that we have in the balance of this year.”—Fed Chair Kevin Warsh, at the annual meetings of the IMF and World Bank (Reuters)

Read. The Brooklyn DA’s Virtual Currency Unit disabled an international crypto fraud network centered in Eastern Europe, shutting down 241 websites and seizing 112 computer servers. (Bloomberg)

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