BoE Governor Confirms Plan for Private Credit Stress Test
The Bank of England governor, Andrew Bailey, has confirmed plans for a private credit stress test, citing growing concerns over systemic risks in the industry.
“Alarm bells” are ringing over the risks in the sector, particularly with regards to the “slicing and dicing and tranching of loan structures”.
Speaking to the House of Lords Financial Services Regulation Committee, Bailey announced that the central bank is in talks with private credit firms about a voluntary stress test. Deputy governor Sarah Breeden added that the test aims to understand the impact of economic stress on the industry's complex interconnections and high degrees of leverage.
- The stress test will be voluntary for private credit firms.
- The test will apply an economic stress to the complex set of interconnections in the industry.
- The goal is to understand the potential losses created by high degrees of leverage in an economic stress scenario.
Author's summary: BoE plans private credit stress test amid systemic risk concerns.