As concerns about the buildup of systemic risks in private credit markets continue to grow, the Bank of England is launching a system-wide stress-testing exercise that focuses on private markets.
On Thursday, the central bank said it’s undertaking an exercise to examine how private markets operate under stress, and to uncover the potential implications for financial stability and the real economy.
The initiative comes amid recent rapid growth in the global private credit and private equity markets. According to the bank, total assets under management in private-market funds now total approximately US$16 trillion globally, with global private equity and credit growing to approximately US$11 trillion from around US$3 trillion over the past decade.
One consequence of this rapid growth is that private markets are increasingly important to the real economy, as they account for a significant share of total corporate debt, and finance businesses that account for a growing portion of private sector employment.
At the same time, there are concerns that the resilience of these markets hasn’t been tested — and that growing connections between the private markets and the mainstream financial industry (banks, insurers, and asset managers) increase the systemic significance of private markets.
Specifically, the central bank pointed to “potential vulnerabilities related to use of leverage, valuation challenges, and the extent of reliance on credit rating agencies” as sources of concern.
In response, its exercise “will aim to address critical data gaps and explore potential risks and dynamics associated with private market finance.”
“It will aim to better understand how banks and non-banks active in private markets would respond to a severe but plausible global downturn, how their actions interact at a system level, and whether these interactions can amplify stress across the financial system,” the central bank said.
Participants in the exercise will include traditional and alternative asset managers, large banks that supply credit to private funds and private equity-sponsored companies, and institutional investors — however, it will not test the resilience of individual firms, as it aims to explore the systemic impact of the sector under stress.
The bank said most of the exercise will be carried out in 2026, and that a final report setting out its findings will be published in 2027.
Additionally, it intends to share its findings with other central banks, regulators and global policy groups, such as the Financial Stability Board, to help improve global understanding of the impact of private markets.