GOLDILOCKS
Chapter 2 assesses vulnerabilities and potential risks to financial stability in private credit, a rapidly growing asset class—traditionally focused on providing loans to mid-sized firms outside the realms of either commercial banks or public debt markets—that now rivals other major credit markets in size. The chapter identifies important vulnerabilities arising from relatively fragile borrowers, a growing share of semi-liquid investment vehicles, multiple layers of leverage, stale and potentially subjective valuations, and unclear connections between participants. If private credit remains opaque and continues to grow exponentially under limited prudential oversight, these vulnerabilities could become systemic.
Given the potential risks posed by this fast-growing and interconnected asset class, authorities could consider a more proactive supervisory and regulatory approach to private credit. It is key to close data gaps and enhance reporting requirements to comprehensively assess risks. Authorities should closely monitor and address liquidity and conduct risks in funds—especially retail—that may be faced with higher redemption risks.
https://www.imf.org/en/Publications/GFSR/Issues/2024/04/16/global-financial-stability-report-april-2024
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