BoE Governor Bailey Confirms Plan for Private Credit Stress Test
The governor of the Bank of England, Andrew Bailey, has confirmed plans for a private credit stress test, citing growing concerns about systemic risks in the industry.
“Alarm bells” are ringing over the risks in the sector, particularly the "slicing and dicing and tranching of loan structures" that led to the 2008 financial crisis.
According to Bailey, the central bank is in talks with private credit firms about a voluntary stress test. Bank of England deputy governor Sarah Breeden added that the test aims to understand the impact of economic stress on the industry's "high degrees of leverage and the losses that that might create".
- The stress test will be a system-wide exploratory scenario to apply economic stress to the complex set of interconnections in the private credit industry.
- The goal is to identify potential risks and losses in the sector.
Author's summary: BoE plans private credit stress test amid growing concerns.