FSB's Bailey warns private credit links could amplify shocks

Private credit could become "one domino in a chain reaction" across banks, insurers and funds, Andrew Bailey said as chair of the Financial Stability Board. The Bank of England governor said the risk comes from interconnectedness rather than the sector's size alone. Alternative Credit Investor reported the remarks Nov. 13.

Bailey cited FSB concerns including uncertainty about valuations, leverage, liquidity, underperforming loans, lending terms, borrower concentration and links among private credit funds, banks, insurers and other investors. "The absence of visible stress should not be mistaken for the absence of risk," he said.

Allocators weighing 2027 commitments will get the Bank of England's read on shared exposures among banks, insurers and funds when interim findings arrive this year. The final report is due in the first half of 2027. Apollo Global Management, Ares Management, Blackstone and KKR are taking part in the system-wide exploratory scenario.

Bailey framed the question as scale and connection, asking how large or connected private credit must become before it poses a financial stability risk. He argued that information gaps and growing interconnections mean private credit could become a stability risk sooner than conventional size measures suggest. A lender that is small relative to global markets can still share the same borrower, insurer balance sheet or fund investor as larger institutions.

The SWES output will test that. If interim findings show limited overlap, managers will have a stronger case that the chain reaction is theoretical. If they show concentrated links, the discussion shifts to what data lenders and their bank counterparties should report.