Portrait of Andrew Bailey
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Andrew Bailey on Private Credit

Cautious monitoring (strong)

TL;DR

Andrew Bailey believes private credit needs monitoring due to systemic risks, yet requires lighter regulation than banks.

Key Points

  • He warned that recent corporate collapses suggest something more fundamental is occurring in private credit markets, echoing pre-2008 crisis conditions.

  • The Bank of England announced it would conduct its first stress test of the private credit industry's role in the UK economy.

  • He contends that private credit entities should have looser rules than banks because their liabilities are investments, not trusted money deposits, which underpins the distinction.

  • As FSB Chair, Andrew Bailey highlighted the growing role of private credit, estimated globally at US$2 trillion, in a letter to G20 Leaders in November 2025.

Summary

Andrew Bailey, in his capacity as Chair of the Financial Stability Board (FSB), has stressed that the evolution of private credit markets warrants close monitoring for global financial stability. Following the collapse of major US firms like First Brands and Tricolor, he has expressed concern, suggesting these events might signal more fundamental issues within the sector. He specifically noted the reappearance of complex financial engineering, such as "slicing and dicing and tranching of loan structures," which he directly compared to practices preceding the 2008 financial crisis, causing alarm bells to ring. The Bank of England has also announced its first-ever stress test for the industry, reflecting this heightened supervisory focus.

Despite these significant concerns about systemic risk, Bailey maintains a nuanced regulatory stance, arguing that private credit should be regulated differently and more light-touch than traditional banks. He emphasizes the fundamental difference between bank liabilities, which are money deposits and rely on the public's trust in nominal value, and non-bank liabilities, which are investments where investors must accept the risk of loss. He worries that pursuing an arbitrage argument too literally could stifle necessary risk-taking investment, provided the core distinction between money and non-money liabilities is maintained and understood by the public.

Frequently Asked Questions

Andrew Bailey views the rapid growth of private credit with significant caution, seeing potential systemic threats that require close monitoring by global watchdogs. He equates certain practices emerging in the sector with those that preceded the 2008 financial crisis, necessitating regulatory attention.

No, Andrew Bailey has explicitly stated that private credit should have looser, more light-touch rules compared to banks. He bases this on the argument that banks hold trusted money deposits, whereas non-banks deal in investments where investors must accept the possibility of loss.

The governor's recent warnings were prompted by the collapse of high-profile US firms, First Brands and Tricolor, which were deeply involved with the sector. He questioned whether these were isolated failures or early indicators of deeper, systemic issues within private credit markets.