{"id":517262,"date":"2025-10-21T15:16:14","date_gmt":"2025-10-21T15:16:14","guid":{"rendered":"https:\/\/www.europesays.com\/uk\/517262\/"},"modified":"2025-10-21T15:16:14","modified_gmt":"2025-10-21T15:16:14","slug":"bank-of-england-chief-warns-of-worrying-echoes-of-2008-financial-crisis-bank-of-england","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/uk\/517262\/","title":{"rendered":"Bank of England chief warns of \u2018worrying echoes\u2019 of 2008 financial crisis | Bank of England"},"content":{"rendered":"

The governor of the Bank of England, Andrew Bailey, has warned recent events in US private credit markets<\/a> have worrying echoes of the sub-prime mortgage crisis that kicked off the global financial crash of 2008.<\/p>\n

Appearing before a House of Lords committee<\/a>, the governor said it was important to have the \u201cdrains up\u201d and analyse the collapse of two leveraged US firms, First Brands and Tricolor, in case they were not isolated events but \u201cthe canary in the coalmine\u201d.<\/p>\n

The Bank of England governor, Andrew Bailey. Photograph: Alastair Grant\/Reuters<\/p>\n

\u201cAre 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?\u201d he asked.<\/p>\n

\u201cI think that is still a very open question; it\u2019s an open question in the US.\u201d<\/p>\n

He added: \u201cI don\u2019t 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<\/a>, people were telling us: \u2018No it\u2019s too small to be systemic; it\u2019s idiosyncratic.\u2019 That was the wrong call.\u201d<\/p>\n

When a mortgage-lending frenzy ended in a housing market bust in the US from summer 2007, it kicked off a wave of financial turmoil.<\/p>\n

Banks on both sides of the Atlantic had made high-risk bets on billions of pounds\u2019 worth of US home loans, often funding the spree with short-term borrowing.<\/p>\n

The resulting crisis, which rolled on for many months, eventually led to a deep recession and a string of costly bank bailouts in the US and Europe, including of RBS and Lloyds in the UK.<\/p>\n

Bailey said the complex nature of some of the financial engineering now in use in the private credit markets had echoes of that period.<\/p>\n

\u201cWe certainly are beginning to see, for instance what used to be called slicing and dicing and tranching of loan structures going on, and if you were involved before the financial crisis and during it, alarm bells start going off at that point,\u201d he told peers.<\/p>\n

\u201cThat stuff was a feature of the financial crisis, so that\u2019s another reason why we\u2019ve got to use these cases as another reason to have more drains up, frankly.\u201d<\/p>\n

He also made clear he was not reassured by the relaxed attitude of some in the sector.<\/p>\n

\u201cI sat in a session with people from the private equity and private credit world some months ago who of course told me everything was fine in their world, apart from the role of the ratings agencies, and I said: \u2018We\u2019re not playing that movie again are we?\u2019\u201d<\/p>\n

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The lax approach of ratings agencies \u2013 sometimes relying on banks\u2019 internal models to determine how risky their own products were \u2013 was an important aspect of the 2007-08 crash.<\/p>\n

The deputy Bank governor Sarah Breeden, appearing alongside Bailey, said the Bank would be carrying out a war game exercise in private credit markets, to test the linkages between private credit and other sectors.<\/p>\n

She underlined some of the concerns about the private credit sector. \u201cIt\u2019s about high leverage, it\u2019s about opacity, it\u2019s about complexity and it\u2019s about weak underwriting standards.<\/p>\n

\u201cThose are things that we were talking about in the abstract as a source of vulnerability in this bit of the financial system, and those appear to have been at play in the context of these two defaults.\u201d<\/p>\n

The collapse of the car parts firm First Brands and the auto lender Tricolor<\/a> prompted concern on Wall Street, with the JP Morgan chief executive, Jamie Dimon, comparing them to \u201ccockroaches\u201d, and saying that more could emerge.<\/p>\n

\u201cMy antenna goes up when things like that happen. I probably shouldn\u2019t say this but when you see one cockroach, there\u2019s probably more. And so everyone should be forewarned at this point,\u201d Dimon said.<\/p>\n

The International Monetary Fund\u2019s global financial stability review last week highlighted concerns about the close connections between private credit markets and mainstream banks<\/a> \u2013 and the IMF\u2019s managing director, Kristalina Georgieva, said it was the issue that kept her awake at night<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"The governor of the Bank of England, Andrew Bailey, has warned recent events in US private credit markets…\n","protected":false},"author":2,"featured_media":517263,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3090],"tags":[51,1700,16,15],"class_list":{"0":"post-517262","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-business","9":"tag-economy","10":"tag-uk","11":"tag-united-kingdom"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@uk\/115412820629012803","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/517262","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/comments?post=517262"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/517262\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media\/517263"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media?parent=517262"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/categories?post=517262"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/tags?post=517262"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}