There are fears that shadow banking could fuel the next financial crisis The $2tn (£1.5tn) private credit industry is being quizzed by the City watchdog over fears its unrecognised losses could fuel a financial system meltdown, The Telegraph can reveal. Officials from the Financial Conduct Authority have in recent weeks been piling pressure on so-called shadow banks – an increasingly critical source of funding for the speculative AI boom – to more rigorously mark down the value of loans that are at risk ...

Iran’s central bank used at least half a billion dollars in USDT to ease a currency crisis and work around sanctions-driven limits on dollar access, according to a new Elliptic report. The blockchain analytics firm reports that the Central Bank of Iran (CBI) acquired at least $507 million in USDT. Elliptic treats this as a lower estimate based on wallets confidently linked to the institution. Investigators began tracing the digital trail after leaked documents showed two USDT purchases in April and May 20 ...

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].

Global assets in the sprawling shadow banking sector have crossed the $250 trillion mark for the first time https://t.co/AYMVAfbrde ...

Core Viewpoint - The Bank of England is conducting a stress test on the private equity sector to assess its resilience in a hypothetical financial crisis, highlighting concerns over the opacity and risks associated with the $11 trillion shadow banking market [1][2][3]. Group 1: Stress Test Overview - Major financial groups such as KKR, Blackstone, Apollo, and Goldman Sachs Asset Management are participating in the stress test [2]. - The system-wide exploratory exercise (SWES) will be conducted next year, with full conclusions expected by 2027 [3]. Group 2: Market Growth and Employment Impact - The private equity and private credit sectors have expanded from $3 trillion to $11 trillion in assets over the past decade [4]. - In the UK, 10% of private sector workers are employed by private equity-backed companies, which account for 15% of corporate debt and a significant portion of riskier lending [4]. Group 3: Recent Market Concerns - The collapse of American companies First Brands and Tricolor has raised alarms about potential risks in the private credit market, which heavily relies on lending to companies rather than banks [5]. - A downturn in private markets could adversely affect banks that lend to private equity-backed firms, potentially undermining financial stability and economic growth [5]. Group 4: Employment and Economic Risks - Private equity-owned companies currently employ approximately two million people in the UK, indicating a significant impact on employment [6]. - A rapid contraction of companies backed by private equity could lead to increased unemployment and negatively affect related markets, such as housing and mortgage lending [6]. Group 5: Industry Characteristics and Risks - The rapid growth of private credit is characterized by its opacity and illiquidity, which may lead to adverse outcomes [7].

It’s hard to fathom how the Bank of England has squared its own public concerns about shadow banking with its reduction in traditional banking safeguards, writes @PaulJDavies (via @opinion) https://t.co/UvNAhoVAed ...

Core Insights - The Muthoot clan's gold loan business is thriving as consumers leverage rising gold prices for short-term cash, with the market for gold loans surging 35% to 13.4 trillion rupees ($151 billion) in the past year [21][3] - Muthoot Finance's outstanding gold loans reached 1.25 trillion rupees, surpassing the State Bank of India's 725.5 billion rupees, although SBI's growth rate was higher at 87% [22][14] - The company faces increasing competition from both local banks and foreign investors, with Bain Capital acquiring an 18% stake in Manappuram Finance for $500 million and Mitsubishi UFJ Financial Group in talks to buy 20% of Shriram Finance for $2.6 billion [3][21] Company Overview - Muthoot Finance has been in the gold loan business for nearly nine decades, with a simple model where clients can borrow up to 75% of their jewelry's value, charging interest rates between 1% to 1.5% per month [8][21] - The company holds 209 metric tons of gold for clients, valued at nearly $28 billion, which is more than Singapore's official foreign reserves [22][13] - The non-performing loan rate for Muthoot Finance stands at 2.3%, comparable to commercial banks, indicating a low default risk among its clientele [16][22] Market Dynamics - The gold loan market in India is deeply rooted in cultural practices, with significant purchases occurring during festivals and weddings, contributing to the high demand for gold loans [5][21] - Muthoot Finance's business model primarily focuses on gold loans, which account for about 90% of its revenue, suggesting a need for diversification into other financial products [14][22] - The company's stock has seen a 73% increase this year, reflecting strong market performance and boosting the Muthoot family's wealth to over $13 billion [17][21]

Core Viewpoint - BlackRock is facing a $500 million loss due to alleged fraud in its shadow banking business, raising concerns about the stability of the shadow banking industry [1][2][6]. Group 1: BlackRock and HPS Investment Partners - BlackRock's private credit investment arm, HPS Investment Partners, is pursuing legal action to recover loans made to a US telecom firm accused of faking customer payments [1][2]. - HPS provided loans to Bankim Brahmbhatt, owner of Broadband Telecom and Bridgevoice, under the condition that he pledged customer receivables as collateral [3][5]. - Allegations include that Brahmbhatt forged contracts, emails, and invoices to misrepresent the legitimacy of the receivables [3][6]. Group 2: Industry Concerns - The incident has intensified worries about the opaque nature of the shadow banking industry, which has attracted significant investments but is now facing potential crises [2][6]. - The International Monetary Fund (IMF) has raised alarms regarding the unregulated private credit market, while JP Morgan's CEO has warned of hidden risks within the financial system [7][6]. Group 3: Legal and Financial Implications - A lawsuit was filed by Alter Domus, a financial services firm acting for HPS, in August, and several companies linked to Brahmbhatt have filed for Chapter 11 bankruptcy protection [5][6]. - The recent failures of companies like First Brands and Tricolor have caused market instability, highlighting the risks associated with bad loans in the financial sector [6].

Core Viewpoint - HSBC is alert to a potential shadow banking crisis due to growing concerns in the private credit industry, despite having relatively small exposure to it [1][3]. Group 1: Concerns and Risks - HSBC's CFO, Pam Kaur, emphasized the importance of monitoring "second and third order risks" from counterparties affected by issues in the private credit sector [2]. - The recent collapses of First Brands and Tricolor, both reliant on private credit, have heightened concerns about the stability of the shadow banking industry [3][4]. - The Bank for International Settlements warned that the life insurance industry may harbor hidden risks due to increasing exposures to private credit [4][5]. Group 2: Market Characteristics - The private credit market is valued at approximately $3 trillion (£2.2 trillion) and is characterized by a lack of transparency and potentially lax lending standards [3]. - Private ratings in this sector are not publicly disclosed, which complicates external validation and may lead to inflated creditworthiness assessments [5][6]. Group 3: Industry Reactions - Jamie Dimon, CEO of JP Morgan, expressed concerns about the potential for more collapses in the shadow banking sector, likening the situation to seeing "one cockroach" indicating more issues may exist [4]. - Conversely, Goldman Sachs' CEO David Solomon downplayed fears of a systemic crisis within the shadow banking industry [8].

Group 1: Market Reactions and Economic Indicators - The FTSE 100 index increased by 0.25% as markets closed, driven by optimism surrounding potential trade talks between the US and China [1] - British stocks saw a boost as investors returned to the London markets following fears of renewed trade tensions, which had previously led to declines [7] - The price of gold experienced its largest drop in four years, falling by 3.8%, as hopes for progress in US-China trade talks diminished its appeal as a safe haven [10][11] Group 2: Private Credit Market Concerns - The Bank of England is considering a "system-wide exploratory scenario" stress test to assess the stability of the private credit market, often referred to as shadow banking, amid rising concerns [2][32] - Andrew Bailey, Governor of the Bank of England, expressed serious concerns that recent high-profile bankruptcies in the US could indicate broader risks within the private credit sector [3][13] - The private credit market, valued at $3 trillion, is drawing parallels to the financial engineering practices that contributed to the 2008 financial crisis [6][5] Group 3: Fiscal Challenges and Government Borrowing - The UK government borrowed £20.2 billion in September, marking the highest borrowing for that month since the pandemic, with total public sector spending rising significantly [53][54] - Economists warn that the Chancellor may need to implement tax increases of around £25 billion to balance the books, as current fiscal headroom has been nearly eliminated [15][23] - The Office for Budget Responsibility noted that while tax receipts have improved, overall borrowing remains higher than forecast due to local authority overspending and bankruptcies [27][28]