Bank of England Governor: Alert to the Recurrence of the 2008 Financial Crisis

Andrew Bailey, Governor of the Bank of England, stated on the 21st that the bankruptcies of American "First Brand" company and "Tricolor" company have "sounded an alarm" for high-risk lending in the private credit market. He compared this phenomenon to the conditions seen on the eve of the 2008 financial crisis.

The American auto parts manufacturer "First Brand" company and subprime auto lender "Tricolor" company declared bankruptcy in September. These two bankruptcy incidents have caused losses for credit investors and are under review by the U.S. Department of Justice.

However, he also mentioned how repackaged financial products in the past obscured the risks of their underlying assets. "We are certainly beginning to see some past practices resurfacing, such as the partitioning and refinement of loan structures. If you lived through the pre-financial crisis period, the alarms start to ring at this point."

Bailey said: "Looking back to before the (2008) financial crisis, when we discussed subprime mortgages in the U.S., we were told they were too small to constitute a systemic risk. That judgment was wrong. I am not saying this judgment is wrong now, but it illustrates the appropriateness of raising questions now."

The International Monetary Fund (IMF) warned last week that European and American banks' exposure to private credit groups, hedge funds, and other non-bank financial institutions amounts to $4.5 trillion, which could amplify the impact of any economic downturn and transmit stress to the broader financial system.

Bailey told the House of Lords that the Bank of England is considering conducting a "system-wide exploratory scenario test" next year to examine the resilience of the private credit market under crisis conditions.