Private Credit: a new systemic risk? Size, potential risks, and possible mitigations

Private Credit is worth $3.5 trillion and represents a limited portion of NBFIs ($257 trillion). It has attracted attention as it has vulnerabilities, clearly flagged by the FSB: high leverage, valuation opacity, liquidity mismatch and interconnections with banks and insurance companies. The author identifies similarities with the 2008 crisis, including double leverage (funds and underlying SPVs) and mark-to-market on collateral, which could trigger a systemic contagion scenario, mainly in the US, through the sequence: credit losses, margin calls, forced sales and widening of spreads.Compared to 2008, however, there is no concentration in a single risk factor and therefore a global crisis is not certain. As mitigating measures, he proposes limiting collateralized loans, allowing targeted access to central bank liquidity and strengthening regulatory reporting for NBFIs.