Stock Markets January 27, 2026

BoE’s Bailey Warns of Urgent Need to Harden Market-Based Finance Against Shocks

Governor flags private credit and private equity resilience as stress test seeks wider economic implications

By Nina Shah
BoE’s Bailey Warns of Urgent Need to Harden Market-Based Finance Against Shocks

Bank of England Governor Andrew Bailey urged stronger global resilience in market-based finance, highlighting private credit as a particular concern. Bailey said the sector is large, fast-growing, disparate and opaque in places, creating complex international interconnections that are difficult to observe. The BoE launched a stress test in December focused on the broader economic impacts of private equity and private credit and will report early next year.

Key Points

  • BoE Governor Andrew Bailey highlights urgent need to bolster resilience in market-based finance, particularly private credit.
  • The Bank of England launched a stress test in December covering private equity and private credit; findings are expected early next year and will focus on economy-wide impacts rather than firm-level health.
  • Regulatory environment and capital requirements are under debate - the BoE eased some bank capital rules in December while political figures and administrations have argued for lighter regulation.

LONDON, Jan 27 - Bank of England Governor Andrew Bailey said there is "a particular and urgent need" to boost the global resilience of market-based finance, specifically naming private credit as an area vulnerable to economic shocks.

In an article published on Tuesday by The Banker, an industry magazine, Bailey described the sector as "very large and fast-growing," noting that its disparate nature and opacity in important areas make international interlinkages complex and often hard to monitor.

In December, the Bank of England initiated what it describes as a stress test of the private equity and private credit industries. The BoE expects the exercise to report back early next year. The test is designed to examine wider consequences for the economy rather than the financial condition of individual firms - the majority of which the Bank does not directly regulate in the way it regulates banks.

Bailey reiterated a position he has voiced before: that there is "no trade-off between stability and growth." He emphasized that improved resilience of the banking system is not a reason for complacency. "Just because the banking system is in a far more resilient position now than in the past is no reason to rest on our laurels," he wrote. He added that the current challenge is to manage risks that lie outside the banking perimeter and to identify and understand new interconnections between banks and non-banks.

The governor's intervention comes against a backdrop of debate over regulation. Last year, finance minister Rachel Reeves characterised regulation as a "boot on the neck" of British businesses. At the same time, the administration of President Donald Trump is reported to be considering a relaxation of capital rules for banks.

In December, the Bank of England reduced some capital requirements for banks for the first time since the global financial crisis. The BoE said it justified that easing on the grounds that other rules have become tougher and that British banks are smaller players on the global stage.

The stress test of private equity and private credit is aimed at revealing how shocks in market-based finance could propagate through the broader economy, rather than assessing individual firm solvency. The Bank's focus on system-wide interconnections reflects concern about opaque links between regulated banks and non-bank financial actors.


Summary

Bank of England Governor Andrew Bailey called for urgent action to strengthen the resilience of market-based finance, citing private credit as a growing and opaque area. The BoE launched a stress test in December of the private equity and private credit sectors, with results due early next year, and stressed that improved bank resilience should not lead to complacency about risks beyond the banking perimeter.

Risks

  • Opaque and complex interconnections between banks and non-bank market-based finance could transmit shocks to the broader economy - impacting financial stability and credit availability.
  • Potential regulatory rollbacks or differing policy approaches by political leaders could complicate the management of systemic risk in the financial sector - affecting banks and market-based finance participants.
  • Lowered capital requirements for banks, even if justified by other tougher rules and smaller global footprints, may prompt scrutiny about the adequacy of buffers if risks outside the banking perimeter materialize.

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