Head of IMF says risks in non-bank lending keep her awake at night

"Speaking at the IMF's annual meeting in Washington DC, Georgieva said the fund was concerned about the very significant shift of financing from the banking sector to non-bank financial institutions (NBFIs). Those NBFIs are not regulated as closely as the banking sector, she pointed out, meaning the world could end up in a difficult place if the private credit sector continues to grow significantly and the global economy then weakens."

"First Brands and Tricolor had both been backed by private credit within the so-called shadow banking sector, which is not directly regulated and is not forced to disclose the level of risks on their books. On Tuesday, the head of JP Morgan, Jamie Dimon, warned that more cockroaches could emerge from the private credit industry. My antenna goes up when things like that happen. I probably shouldn't say this but when you see one cockroach, there's probably more."

Concerns are rising about risks in non-bank lending markets and rapid financing shifts from banks to non-bank financial institutions (NBFIs). Failures of sub-prime auto lender Tricolor and car parts supplier First Brands were linked to private credit within the shadow banking sector. NBFIs are less tightly regulated and are not required to disclose the level of risks on their books, increasing opacity in private credit exposures. Industry warnings suggest further hidden problems may exist within private credit, prompting elevated vigilance. Some major economies hold substantial reserves and stronger policy frameworks than before 2008, but many countries have limited fiscal space to respond to shocks.

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