The collapse of two companies could be an early warning on the state of the US financial system, according to the head of the Bank of England.
BoE governor Andrew Bailey told the House of Lords’ financial services regulation committee that the failures of car parts supplier First Brands and subprime car lender Tricolor due to excessive debt and risky loan structures should be taken seriously, reports the BBC.
Bailey drew comparisons to the 2008 financial crisis, questioning whether the corporate meltdowns indicate broader and more systemic issues are underway.
“I think the big question… is: are these cases idiosyncratic, or are they what I call the canary in the coal mine?
Are they telling us something more fundamental about the private finance and private assets sector? I think that’s still a very open question in the US.”
Bailey says the Bank of England plans to conduct a stress test of private equity and credit firms to better understand potential systemic risks.
He also questions the structure of loans in the private credit market, where companies borrow from non-bank lenders.
Bailey says there has been an increase in “slicing and dicing and tranching of loan structures,” echoing practices seen before the 2008 financial crisis.
“If you’re involved before the financial crisis, the alarm bells start going off at that point.”
Sarah Breeden, the Bank’s deputy governor for financial stability, also appeared before the committee and confirmed the Bank will be examining the private finance sector.
“We can see the vulnerabilities here. We can see parallels with the global financial crisis.”
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The post ‘Alarm Bells’ Ringing As Collapse of Two US Companies Echo 2008 Financial Crisis: Bank of England Governor appeared first on The Daily Hodl.

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