(Bloomberg) -- A top European Central Bank official said individual private credit firms have become so big that they can affect the state of the wider financial system.
Some direct lenders “have grown to such a scale and have reached such a level of interconnectedness that they now exhibit systemic characteristics,” said Elizabeth McCaul, a member of the ECB’s Supervisory Board.
That makes “their stability integral to the health of the broader financial system,” she said in a speech on Tuesday, without naming any firms.
Private credit has become a key focus for regulators in recent years, after the asset class boomed when banks retreated from certain types of lending following the financial crisis. While authorities have warned about the potential dangers from the sector, the industry has pushed back against any arguments that regulation comparable to that of the banking is warranted.
McCaul also said that while 43% of the market belongs to the eight largest providers, the remainder “is driven by smaller providers who may be less experienced in the vagaries of credit cycles.”
The valuation methods used in private markets may also disguise potential losses, said McCaul.
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