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The Bank of England has launched a stress-testing exercise for private credit and equity firms, responding to growing concerns about their potential threat to the wider economy. The move comes as these less-regulated markets have exploded in size over the past decade and now support around two million UK jobs.
Total assets in private credit and equity funds have surged from around three trillion US dollars (£2.25 trillion) to 11 trillion dollars (£8.23 trillion) over the past decade. These firms are increasingly financing UK companies, but operate with significantly less regulation and oversight than traditional banks.
The initiative follows mounting worries in recent months about market strength. The October collapses of US auto parts firm First Brands and car dealer and lender Tricolor fuelled investor concerns about the sector's resilience during financial shocks.
What the Bank wants to know
The central bank aims to determine whether private markets pose risks to UK financial stability. Sarah Breeden, the Bank's deputy governor for financial stability, said: «Private equity and private credit play an increasingly valuable role in helping UK companies to innovate, invest and grow.»
She added: «To keep delivering those benefits, we need a robust understanding of how risks might flow through the financial system in a stress.»
Governor Andrew Bailey recently stated the Bank had to take concerns over the failures «very seriously».
Testing timeline
Most testing will happen in 2026. The Bank of England expects to provide an update on findings during 2026, with a final report in early 2027.
A range of private market firms have agreed to participate, including what the Bank described as «major global players». Investment giants Blackstone, Apollo and KKR are reported to have agreed to take part.
Background
Private credit involves businesses securing lending from private companies rather than traditional banks. Private equity typically entails financing a business in return for an ownership stake.
The Bank of England notes these firms have not previously been tested against a severe global downturn, underscoring the necessity for the current exercise.
Note: This article was created with Artificial Intelligence (AI).
