The Bank of England has flagged the rapid growth of shadow banking as a potential threat to global financial stability, with Governor Andrew Bailey highlighting the “urgent need” to strengthen resilience in market-based finance, according to a report by The Times.
The sector, which includes private credit, private equity, hedge funds, and insurance companies, has expanded to an estimated $16tn globally.
Bailey stressed that the interconnectedness between traditional banks and non-bank institutions remains poorly understood, with opaque operations and complex financing structures potentially creating systemic vulnerabilities. The Bank is conducting its first stress test of private markets, involving major players such as BlackRock, Pimco, Rokos, Citadel, Goldman Sachs, and JP Morgan, to assess potential risks in a crisis scenario.
Bailey cautioned that while regulators have eased rules on banks to support growth, vigilance is needed to prevent the next financial shock from emerging outside the traditional banking sector.
