Private credit’s opacity, high levels of debt and rising default rates are creating vulnerabilities that risk amplifying stress in the event of a crisis, the global financial stability watchdog warned.
The rising participation of retail investors and growing interconnections between the fast-growing market and mainstream finance added to the threat, the Financial Stability Board said in a report, with the $2tn industry “untested” in a deep economic downturn.
Although banks’ direct lending to private credit funds was “relatively small” at less than 0.5 per cent of their total assets, the watchdog warned a “web of interlinkages may create challenges for banks in effectively managing their direct and indirect risks”.
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