The European Systemic Risk Board, the continent’s top financial stability watchdog, is examining risks lurking in the private credit market. An adviser to the body confirmed the review, which comes as European regulators increasingly circle a sector that has ballooned in size while remaining stubbornly opaque.
The global private credit market is estimated at between $1.5 trillion and $2 trillion, according to the Financial Stability Board.
What the regulators are seeing
The European Central Bank published a report on May 19 concluding that private credit is unlikely to threaten financial stability right now. The ECB flagged valuation uncertainty and sector concentration as persistent vulnerabilities. Even without direct exposures between private credit and the traditional banking system, the ECB warned that data gaps and potential spillover effects could endanger stability, especially during periods of broader global market stress.
The FSB’s own analysis, published on May 6, noted that interconnectedness with banks and the insurance sector, combined with increasing leverage among private debt funds, could amplify stress during adverse conditions.
