Bank should take concerns over private finance ‘very seriously’, says Bailey

The Bank of England must take the collapse of two US firms “very seriously” amid concerns over the private finance sector, Andrew Bailey has warned.

The Governor of the central bank also confirmed that the Bank is planning to run a “stress test” with private equity and credit firms at House of Lords committee.

Meanwhile, Sarah Breeden, a deputy governor of the Bank, suggested that there were some “parallels” with the early days of the 2008 global financial crisis.

The cautions come after the collapse of US auto parts firm First Brands and car dealer and lender Tricolor.

The collapses have raised concerns that the global private debt markets have been too active at lending at high interest rates, with fears that this could result in further collapses.

Mr Bailey told the Lords financial services regulation committee that policymakers will have to consider how systemic these incidents could be.

He said: “I think the big question today… is: are these cases idiosyncratic, or are they what I call the canary in the coalmine?

“In other words, are they telling us something more fundamental about the private finance and private assets sector?

“I think that’s still a very open question in the US. I think it’s a question we have to take very seriously.”

Meanwhile, Ms Breeden, the Bank’s deputy governor for financial stability, said the bank would take part in detailed testing to assess how robust private finance currently is.

“We can see the vulnerabilities here, the opacity, the leverage, the weak underwriting standards, the interconnections,” she said.

“We can see parallels with the global financial crisis.”