FSB Watchdog Flags Risks in Banks’ Growing Private Credit Ties
Article 0 Comments The fast-growing private credit industry’s deepening links with traditional banks and asset managers create risks to the global financial system, the global Financial Stability Board watchdog said on Wednesday, warning some broader measures showed upwards trends of defaults. Signs of some underlying stress are emerging across private credit – typically lending to mid-sized companies by non-banks – including rising defaults, while a lack of transparency is posing challenges for regulators and investors alike, the watchdog said in its “Vulnerabilities in Private Credit” report. It singled out the “retailisation” of private credit – particularly in the United States where funds are marketed to wealthy retail investors – as a potential amplifier of risk. “Interconnectedness between private credit and insurers has also increased, with the FSB estimating that around 10% of life insurer portfolios may be in private credit, against around 3% for non-life insurers.” The FSB, which coordinates financial regulation for the world’s major economies, valued the overall private credit market at between $1.5 trillion and $2 trillion using 2024 data. The Alternative Investment Management Association puts it higher at $3.5 trillion. The private lending sector has grown rapidly since the 2007-2009 financial crisis partly due to tighter...