The Bank of England has warned of the “urgent need” to make the shadow banking industry safer amid mounting concerns it could be the cause of the next financial crisis.

Andrew Bailey, the Bank governor, said regulators should not “rest on our laurels” because they had strengthened the resilience of traditional lenders following the 2008 banking crash.

“The challenge now lies in managing risks that sit beyond the banking perimeter as well as identifying and understanding new interconnections between banks and non-banks,” he wrote in an article for The Banker magazine. “There remains a particular and urgent need to increase resilience in market‑based finance globally.”

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Market-based finance, which is sometimes called shadow banking and encompasses a variety of bank-like activities undertaken by institutions such as pension funds, insurance companies and hedge funds, is “very large and fast-growing”, the governor said.

“It is disparate in nature and opaque in important places, meaning that the international interlinkages are, perhaps unsurprisingly, complex and hard to observe.”

The comments are the latest in a series of warnings sounded by the Bank about the possible threat to financial stability lurking in what is a largely unregulated corner of the system.

Financing by non-banks has proliferated since the 2008 crisis as tougher rules on banks have stymied their appetite to lend. Private market funds are now reckoned to oversee $16 trillion of assets globally, with the private credit and private equity industries having surged in size to an estimated $11 trillion, from $3 trillion, in ten years.

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Yet data on these markets is scarce and regulators are concerned that the myriad connections between non-banks and deposit-taking banks are little understood. There are also worries about lax underwriting standards and the increasingly complex nature of shadow bank financing.

The collapse in September of two American companies with ties to private finance, First Brands and Tricolor, also raised concerns that broader strains might be emerging. Peers on the House of Lords financial services regulation committee cautioned this month that the government appeared to have only a “limited grasp” of the possible risks posed by private credit and equity.

Meanwhile, the Bank is seeking to improve its understanding by this year, undertaking a stress test of the private markets ecosystem to gauge the potential economic and financial fallout from a hypothetical crisis in this area.

This exercise is the first of its kind by any global regulator and big private market players including Apollo, Ares, Blackstone, Carlyle and KKR have agreed to participate.

Bailey’s calls for vigilance on shadow banking come at a time when regulators are under pressure from ministers to cut back their rule books, amid concerns in government that economic growth is being stifled by red tape.

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Both the Bank’s Prudential Regulation Authority and the Financial Conduct Authority have responded by paring back requirements on the City in recent years. This has included the notable decision last month by the Bank to cut capital requirements on the banking system for the first time since the 2008 crisis.

This was branded a “mistake” by Sir John Vickers, one of the main architects of post-crash financial regulation who was previously also a chief economist at the Bank, and David Aikman, another former Bank official, who jointly argued that the regulator “should, if anything, be tightening, not loosening, policy”.