\n<\/p>\n
The head of the International Monetary Fund has admitted that worrying about the risks building up in non-bank lending markets keeps her awake at night.<\/p>\n
Kristalina Georgieva on Thursday urged countries to pay more attention to the private credit market, after the failure of the sub-prime auto lender Tricolor and the car parts supplier First Brands.<\/p>\n
Speaking at the IMF\u2019s annual meeting in Washington DC, Georgieva said the fund was concerned about the \u201cvery significant shift of financing\u201d from the banking sector to non-bank financial institutions (NBFIs).<\/p>\n
Those NBFIs are not regulated as closely as the banking sector, she pointed out, meaning the world could end up in \u201ca difficult place\u201d if the private credit sector continued to grow significantly and the global economy then weakened.<\/p>\n
\u201cThis is why we are urging more attention to the non-bank financial institutions,\u201d Georgieva told reporters, suggesting there should be more oversight of the sector. \u201cYou are asking the question that keeps me awake every so often at night.\u201d<\/p>\n
First Brands and Tricolor had both been backed by private credit within the so-called shadow banking sector, which is not directly regulated and is not forced to disclose the level of risks on their books.<\/p>\n
On Tuesday, the head of JP Morgan, Jamie Dimon, warned that more \u201ccockroaches\u201d could emerge from the private credit industry.<\/p>\n
\u201cMy antenna goes up when things like that happen. I probably shouldn\u2019t say this but when you see one cockroach, there\u2019s probably more. And so everyone should be forewarned at this point,\u201d Dimon said.<\/p>\n
Georgieva said the IMF was being \u201cvery watchful\u201d, but argued that \u201cso far, not that many cockroaches\u201d had been spotted.<\/p>\n
She said she was encouraged that countries across the globe had better policy frameworks than were in place before the global financial crisis of 2008, while \u201csystemically significant economies\u201d had accumulated massive reserves to cope with problems.<\/p>\n
But, she cautioned that many countries had exhausted their fiscal buffers, meaning they had little budget headroom to handle a financial crisis, while central banks were still battling inflation, and she urged vigilance over the non-bank sector.<\/p>\n
\u201cIn this environment, of course, the security blanket is covering us, but maybe we have a foot out in the cold. We have to be vigilant. What do we do? We watch it very carefully,\u201d Georgieva said.<\/p>\n
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Sign up to Business Today<\/span><\/p>\n Get set for the working day \u2013 we’ll point you to all the business news and analysis you need every morning<\/p>\n Privacy Notice: <\/strong>Newsletters may contain information about charities, online ads, and content funded by outside parties. If you do not have an account, we will create a guest account for you on theguardian.com to send you this newsletter. You can complete full registration at any time. For more information about how we use your data see our Privacy Policy. We use Google reCaptcha to protect our website and the Google Privacy Policy and Terms of Service apply.<\/span><\/p>\n after newsletter promotion<\/p>\n She also cited the \u201cstretched valuations\u201d in the stock market as a concern, in the event that the enthusiasm about AI does not pay off, or its benefits take too long to arrive.<\/p>\n Back in June, BlackRock predicted that the private credit sector\u2019s assets under management would grow to $4.5tn by 2030, up from an estimated $3tn today.<\/p>\n BlackRock\u2019s Amanda Lynam and Dominique Bly said there was an \u201cexpanding addressable market\u201d of investors and borrowers for private credit. \u201cIndeed, private credit has evolved from an asset class that was best placed to accommodate niche financing solutions, or lending to smaller, middle-market borrowers, to a sizeable, scalable, stand-alone asset class,\u201d they added.<\/p>\n Earlier this week, the IMF warned that the growing exposure to NBFIs was generating concentration risk among some banks in the US and Europe.<\/p>\n The fund is concerned that banks are increasingly lending to private credit funds because these loans often deliver higher returns on equity than traditional commercial and industrial lending, thanks to the lower capital requirements allowed by their collateral structure.<\/p>\n It also warned US stock markets \u2013 which have rallied during the AI boom \u2013 were at risk of a \u201csudden, sharp correction\u201d while government bond markets were under mounting pressure.<\/p>\n","protected":false},"excerpt":{"rendered":" The head of the International Monetary Fund has admitted that worrying about the risks building up in non-bank lending markets keeps her awake at night. Kristalina Georgieva on Thursday urged countries to pay more attention to the private credit market, after the failure of the sub-prime auto lender Tricolor and the car parts supplier First<\/p>\n","protected":false},"author":1,"featured_media":28512,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[49],"tags":[10231,2575,1051,6654,531,306,16030,446,1877,982],"class_list":{"0":"post-28511","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business","8":"tag-awake","9":"tag-credit","10":"tag-fund","11":"tag-imf","12":"tag-international","13":"tag-market","14":"tag-monetary","15":"tag-night","16":"tag-private","17":"tag-risks"},"_links":{"self":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/28511","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=28511"}],"version-history":[{"count":0,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/28511\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/media\/28512"}],"wp:attachment":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=28511"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=28511"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=28511"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}