- Hidden leverage through shadow debt and its links to lenders is becoming a major cause for concern as rising interest rates send tremors through financial markets.
- Private equity firms and others may have loaded up on cheap loans without enough oversight into how the debt could be interconnected.
- Deeper probes into shadow lending globally are likely to identify where the risk ended up after it moved off bank balance sheets following the financial crisis.
- Asset managers are concerned about a systemic credit event posing the biggest threat to global markets, and the most likely source of one is US shadow banking.
- Private credit will be an area of focus this year, partly because it is predicted to double its assets under management to $2.7tn by 2026.
Banking Crisis Raises Concerns About Hidden Leverage in the System
As traders rush to identify where the next bout of volatility will come from, some watchdogs think the answer may be buried in the huge pile of hidden leverage that’s been quietly built over the past decade.
Neil Callanan
