Treasury doesn’t understand risks of shadow banking bubble, Lords warn

Core Viewpoint - The Treasury is criticized for its passive approach towards the risks associated with the shadow banking bubble and private markets, which could threaten the UK's financial stability [1][2][5]. Group 1: Treasury's Engagement and Risks - The Treasury has shown a "limited grasp" of the risks posed by the private markets boom, leading to concerns about financial stability [1][2]. - The report highlights a passive attitude from the Treasury, which is surprising given the potential risks from shadow banking and private markets [2]. - The rapid growth of private credit, particularly corporate loans from non-bank lenders, raises concerns about stability and the impact of a potential crash on the financial system [2][3]. Group 2: Industry Concerns and Warnings - Jamie Dimon, CEO of JPMorgan, warns that lax lending standards could lead to more issues in the future [3]. - The collapse of two US companies, First Brands and Tricolor, has fueled concerns about weakening lending standards [2]. - Lord Hollick emphasizes the need for the Treasury to actively seek information and engage with the risks associated with private markets, as they involve significant amounts of savers' money [3][4]. Group 3: Regulatory Actions and Market Growth - The Bank of England is praised for planning the world's first "stress test" of the shadow banking sector, with results expected in early 2027 [5][6]. - The report notes that while tougher regulations have increased the resilience of banks, they have also pushed some lending activities outside the regulated banking sector [6]. - Britain's private market has grown by 56% since 2015, reaching $185 billion (£138 billion), making it the second-largest after the United States [7].