FSB report on vulnerabilities in private credit

The Financial Stability Board (FSB) has published a report on vulnerabilities in private credit. The FSB notes that, while private credit brings benefits such as tailored finance for companies and investor diversification, it also embeds several vulnerabilities. The report focuses on the potential vulnerabilities around bank interlinkages; borrower credit risk and opacity in valuation practices; concentration, leverage and liquidity issues; and data challenges faced by regulators when monitoring exposures. The FSB also highlights that private credit remains untested in a prolonged economic downturn and so warrants close attention.

Looking ahead, the FSB encourages regulatory authorities to: (i) address data challenges, including those related to the lack of granular fund and loan-level data and the absence of harmonised global definitions; (ii) deepen analysis of interlinkages of private credit with private equity and insurers and of liquidity mismatches in private credit funds; and (iii) share supervisory approaches on risk management and governance for banks and non-banks active in private credit, including aggregation of exposures, valuation practices and the use of private ratings.

Return to main website.