Germany’s BaFin Warns Banks on AI Concentration Risks

In a clear signal of mounting regulatory concern, BaFin’s head of banking supervision, Nikolas Speer, pinpointed the core issue during an online conference on IT resilience. “We’re currently observing the development of both vertical and horizontal connections which are hard to see into from the outside,” Speer stated. This statement underscores a critical challenge for supervisors: the intricate and often non-transparent networks forming between companies at the forefront of the AI boom. These connections, which span supply chains (vertical) and market alliances (horizontal), create a complex web of dependencies that banks are increasingly woven into, yet one that regulators struggle to map and assess.

The warning from BaFin, Germany’s top financial watchdog, moves beyond generic cautions about technological risk. It specifically identifies the structure of the AI industry itself as a threat vector. As banks rapidly integrate AI tools for everything from fraud detection to customer service and credit scoring, they are inevitably tying their operational resilience to the stability and practices of a concentrated group of external providers. The “hard to see” nature of these inter-company relationships means that a failure, security breach, or strategic decision at one key node in this AI network could have unforeseen and cascading effects throughout the financial institutions that rely on it.

BaFin’s alert directly connects the dots between AI adoption trends and a deepening structural vulnerability for German and, by extension, European finance. The regulator’s analysis suggests that the current trajectory of technological integration will “further cement lenders’ reliance on foreign tech giants.” This reliance is not merely a commercial concern but a potential systemic one. Concentration risk—where many critical institutions depend on the same few external providers—creates a single point of failure that could threaten broader financial stability.

This warning from BaFin resonates within the broader context of European efforts to assert greater technological sovereignty. Dependence on non-EU technology providers for core infrastructure, especially in a field as transformative and data-sensitive as AI, raises issues of control, data governance, and strategic autonomy. The financial sector, as the circulatory system of the economy, is a particularly sensitive domain for such external dependencies. BaFin’s intervention signals that financial stability is now intertwined with the geopolitics of technology, where the dominance of a small number of foreign corporations in the AI supply chain is viewed as an operational risk that requires active supervision and mitigation.

For a regulator like BaFin, tasked with ensuring the safety and soundness of banks, this new landscape presents a formidable supervisory challenge. Traditional oversight models are built on transparency and clear accountability chains within regulated entities. The emergence of opaque, multi-layered partnerships between banks and sprawling, non-financial tech ecosystems complicates this picture immensely. Assessing the true risk profile of a bank now requires understanding the resilience and governance of its external AI providers, a task for which many regulators may not yet be fully equipped.

The public warning from Nikolas Speer is likely a first step in a broader regulatory response. It serves to formally put the banking sector on notice, urging institutions to scrutinize their own technological supply chains and concentration risks. The next phases may involve more prescriptive guidance, stress-testing scenarios for tech provider failures, or enhanced reporting requirements on third-party dependencies. Ultimately, BaFin’s message is that in the race to adopt AI, banks must not overlook the foundational principle of risk diversification. Ensuring financial resilience in the digital age will depend as much on managing technological concentration as it does on managing financial leverage.