Treasury has ‘limited grasp’ of concerns over booming shadow banking sector, peers say

A UK Lords committee report states the Treasury has a "limited grasp" of the potential risks the growing $16 trillion shadow banking sector poses to financial stability. The report expresses concern that the Treasury may not be prepared for a downturn in the US-dominated sector, which includes private equity and credit firms, despite its entanglement with UK banks and insurers. The committee suggests the UK could be among the first to experience fallout due to its position as a global financial center. The Bank of England is launching a stress test to map potential risks, prompted by concerns from Governor Andrew Bailey regarding weak lending standards reminiscent of the sub-prime mortgage crisis. The IMF has also warned of potential destabilizing ripple effects on traditional banks from a downturn in private credit.

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