The IMF for close supervision of the private credit market which weighs 2,000 billion dollars

The IMF for close supervision of the private credit market which weighs 2,000 billion dollars
The IMF for close supervision of the private credit market which weighs 2,000 billion dollars

The private credit market, in which specialized non-bank financial institutions, such as investment funds, grant loans to corporate borrowers, reached $2.1 trillion in assets and capital employed last year, which requires closer supervision, according to the International Monetary Fund (IMF).

In a blog published on its website, experts from the international financial institution based in Washington recall that credit has had notable economic benefits by allowing borrowing companies to obtain long-term financing. However, the migration of this credit from the framework of regulated banks and more transparent bond markets to the more opaque world of private credit creates potential risks.

“Valuations are not established on a regular basis, credit quality is not always obvious or easy to assess, and it is difficult to understand how systemic risks could form given the difficult to read interconnections between funds private credit firms, private equity firms, commercial banks and investors,” the analysis reads.

While reassuring that today, the risks that private credit poses to immediate financial stability seem limited, “the opacity and the great interconnection of this ecosystem, and in the event that the sector continues its rapid growth with limited supervision, existing vulnerabilities could escalate into systemic risk for the entire financial system.”

Several weaknesses were identified in the IMF’s latest Global Financial Stability Report, including vulnerability to increases in interest rates and slowdowns in economic activity.

“It is imperative to redouble vigilance in terms of regulation and supervision in order to monitor and evaluate the risks in this market,” affirms the same Source.

With MAP

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