Authorities warn on private credit risks
Politicians and regulators have raised concerns about the fast-growing private credit market and the potential risks for the global financial system.
Two US senators – Sherrod Brown and Jack Reed – wrote a letter in November to leaders at the Federal Reserve, Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, asking if private credit could threaten the safety of the banking system.
“Private credit funds operate in the shadows, and we are concerned that risk may be accumulating in the absence of sufficient oversight and accountability,” they said in the letter, seen by Financial Regulation News.
Read more: What is the true size of the private credit market?
And last month, the Bank of England said in its latest financial stability report that economic instability “could cause sharp revaluations of credit risk.”
“Higher interest rates in advanced economies continue to pose challenges to UK financial stability through their impact on households, businesses, sovereigns and financial institutions,” the report said.
“Riskier corporate borrowing, such as private credit and leverage lending appears particularly vulnerable.”
Private credit industry leaders, including Oaktree Capital Management’s co-founder Howard Marks, have also raised concerns about the challenges facing the sector amid higher interest rates and slower economic growth.