Bank of England governor Andrew Bailey has warned that the sudden collapse of two US companies may be an early sign of wider problems in the global financial system.
He said regulators must take the bankruptcies of car parts dealer First Brands and car dealership Tricolor “very seriously”, amid growing concern that fragility in the private credit market could echo the beginnings of the 2008 financial crisis.
Giving evidence to the House of Lords financial regulation committee, Bailey asked: “Are these cases idiosyncratic or are they ‘the canary in the coal mine?’ In other words, are they telling us something more fundamental about the private finance, private asset, private credit, private equity sector?
"Or are they telling us that in any of these worlds there will be idiosyncratic cases that go wrong? I think that is still a very open question.”
The two failures have left several US banks nursing multimillion-dollar losses and prompted regulators worldwide to examine potential risks from the opaque and complex private credit markets.
Bailey said: “I don’t want to sound too foreboding, but the added reason this question is important is if you go back to before the financial crisis, when we were having this debate about sub-prime mortgages in the US, people were telling us it’s too small to be systemic.
"That was the wrong call. I’m not saying the call should be the same this time, but it underlines why the question is apposite.”
FTSE100
The UK's flagship share index, the FTSE 100, was xx at xx shortly after opening this morning.
Brent crude oil futures were down 0.31% at $61.63 a barrel.
Companies reporting today
- Aberdeen Group - Q3 Trading Statement
- Barclays - Q3 Results
- Fresnillo - Q3 Production Report
- Hochschild Mining - Q3 Production Results
- Reckitt Benckiser - Q3 Trading Statement
- Softcat - Full Year Results
- Tesla - Q3 Results