The UK’s House of Lords has sharply criticised the Treasury for its “limited grasp” of risks in private capital markets and called on the Bank of England to accelerate stress testing of the sector, according to a report by Bloomberg.
In its report, the Financial Services Regulation Committee highlighted the rapid growth and interconnectedness of private markets with banks and insurers as potential concerns for financial stability. While the inquiry could not determine whether private markets pose systemic risk, it found evidence of “passivity” from the Treasury in monitoring emerging threats.
Committee members stressed the urgency of understanding how private credit interacts with deposit-taking banks, insurers, and broader financial markets. Lord Hollick warned of potential spillovers from the US, referencing JPMorgan CEO Jamie Dimon’s caution about hidden risks in corporate credit markets.
The Lords urged the Treasury to clarify how it plans to regulate private markets, assess risks, and ensure credit affordability. Baroness Noakes called for the Bank of England to publish results from its stress tests by mid-2026, rather than 2027, to identify regulatory gaps and potential threats to financial stability.
Treasury and Bank of England spokespersons said they welcomed the report, with the Treasury noting its “robust, flexible framework” for protecting financial stability and the BoE highlighting ongoing system-wide scenario exercises on private markets.
The report also raised concerns about valuation accuracy and credit rating reliability in the expanding private credit sector, now estimated at around $16 trillion globally.
