Private credit concerns
One of those possible shocks relates to private credit. Investors have been fleeing private markets where they can profit off loans to risky companies made by financial firms that aren’t banks. Panic has spread as some of those loans have soured, catching the attention of regulators.
Federal Reserve Chair Jerome Powell has said that while some people will lose money, for now the problem doesn’t seem like it will feed out and threaten the stability of the financial system. But he added that the central bank continues to monitor the situation closely.
On the other side of the Atlantic, the tone is a bit more worried. Bailey has highlighted the need to probe banks’ potential exposure to these markets closely, harkening back to the 2008 financial crisis when subprime mortgages led to a larger catastrophe than policymakers initially thought possible.
The in-person meetings will give the Europeans the opportunity to probe how worried they should be about private credit, Lipsky said.
“Part of it is maybe the Europeans looking at the U.S. and wondering, if it was systemic, would they tell us?” he added. “To compare notes privately is useful.”
Banks’ safety
While policymakers are likely to focus on risks bubbling outside the banking system, that doesn’t mean the traditional lending sector faces no concerns. Technological developments, such as powerful new artificial intelligence models with the potential to break through digital firewalls far more effectively, pose possible increased threats.