Concerns Over Private Markets and UK Financial Stability

A recent report by the House of Lords Financial Services Regulation Committee has raised alarms regarding the rapid growth of private markets in the UK, which have surged to a $16 trillion (£11.9 trillion) industry. The committee criticized HM Treasury for its “limited grasp” of the associated risks, particularly highlighting the interconnectedness of private markets with banks and insurers. The report, published on January 9, 2026, emphasized that the Treasury's evidence during the inquiry suggested a passive approach to potential threats to financial stability.

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The committee specifically pointed to the increasing role of private credit in financing UK companies since the global financial crisis, coinciding with banks' shift to an 'originate to distribute' lending model. The growth of collateralized loan obligations and significant risk transfers in the UK were also noted as potential threats. The report urged the Bank of England and the Prudential Regulation Authority to closely monitor developments in these markets.

Peers raise alarm over private markets boom and UK financial stability

The expansion of private markets has been partly driven by regulatory changes post-2008, which have pushed banks away from riskier lending. While these reforms have strengthened financial stability, they have also left small and medium-sized enterprises (SMEs) underserved. The report indicates that banks' share of total lending to the real economy has decreased from 85% in 2008 to 80% in 2024, prompting calls for a review of capital requirements and reforms to the minimum levels of loss-absorbing capital and debt banks must hold.

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Critics argue that excessive regulatory burdens have stifled business growth, and there is a growing sentiment that the government must reclaim control over regulatory powers to foster economic growth. The government has been exploring regulatory reforms as a means to stimulate growth, but the effectiveness of these measures remains in question.

Regulation, Private Markets and the UK’s Growth Challenge

Lord Forsyth of Drumlean, chairman of the committee, stated, “Our inquiry sought to shine a light on the implications of the rapid growth of private credit markets.” He acknowledged the need for vigilance from the Bank of England and other regulatory bodies regarding the implications for financial stability. The report also highlighted a significant gap in data regarding the scale of private market lending and its interconnections with banks, which could hinder effective policymaking.

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Despite the concerns raised, some industry figures have dismissed warnings about systemic risks in private credit markets, attributing recent bankruptcies, such as those of Tricolor and First Brands, to isolated incidents of corporate fraud rather than indicative of broader issues. This perspective suggests a divide between regulatory caution and industry optimism regarding the stability and potential of private markets.

Peers raise alarm over private markets boom and UK financial stability

The report concluded that there is “insufficient” data to determine whether private markets pose a systemic risk to the UK’s financial stability, indicating considerable unknowns. This lack of detailed information on the expansion of private markets and their lending practices presents a challenge for regulators and policymakers.

Peers raise alarm over private markets boom and UK financial stability

As the Bank of England prepares for a stress test of the private credit sector, the ongoing scrutiny of private markets will likely shape future regulatory approaches. The government’s ability to balance growth with adequate oversight will be critical in determining the trajectory of the UK economy in the coming years.

Regulation, Private Markets and the UK’s Growth Challenge