Private Credit Collapses Spark Fears of ‘Subprime’ Risks in New Lending Frontier ...

Private Credit Collapses Spark Fears of ‘Subprime’ Risks in New Lending Frontier.

The Bank of England has compared the collapse of US private credit firms to the 2007 subprime crisis. Governor Andrew Bailey says it’s an ‘open question’ if collapse of First Brands and Tricolor is merely idiosyncratic or “the canary in the coalmine”. 


Boss of JP Morgan, Jamie Dimon, warned over further losses linked to the private credit sector, saying more “cockroaches could emerge” and they could be crawling to Europe.


The collapse of two US firms has highlighted the risks in the private credit market, and compared it to the subprime mortgage failures that preceeded the 2008 financial crisis.


Sarah Breeden Deputy Governor has suggested the First Brands and Tricolor collapse illustrate some of the risks the Bank has been talking about in this market for some time.


“It’s about high leverage, it’s about opacity, it’s about complexity and it’s about weak underwriting standards. These factors appear to have been at play in the context of the two defaults.


Last week, the boss of JP Morgan, Jamie Dimon, warned over further losses linked to the private credit sector, saying more “cockroaches” could emerge and they could be crawling to Europe.


Both firms had been backed by private credit within the so-called shadow banking sector, which is not directly regulated and is not forced to disclose the level of risks on their books. Regulated banks such as JP Morgan are exposed to the private credit sector, either by lending directly to private businesses, or lending to the private credit firms themselves.


What do we mean by the private credit market?
The private credit market refers to lending conducted by non-bank lenders, such as private credit firms, asset managers, or private equity funds, who provide loans directly to businesses, typically outside of traditional public or syndicated markets. 


These private loans are customized, often targeting small-to-mid-sized enterprises or companies with less-than-investment-grade credit profiles. They are held to maturity in “buy and hold” style portfolios rather than traded on a public exchange.


Private Credit has become the financial markets' new frontier. Beyond banks, direct lenders and global funds are writing loans for companies who don't fit the public bond mould.


The market's exponential growth, now a $3 trillion force, brings greater flexibility but also echoes the hidden risks of the subprime mortgage crisis. The recent collapses of First Brands and Tricolor remind us that opacity and rapid expansion can breed systemic tremors.

As policymakers urge caution, it's time for market participants to focus on risk, resilience, and transparency.

References
https://www.theguardian.com/business/2025/oct/14/jp-morgan-jamie-dimon-losses-private-credit-sector 
https://www.theguardian.com/business/live/2025/oct/21/uk-borrowing-outstrips-forecasts-reeves-amazon-web-services-outage-resolved-bank-of-england-stock-markets-business-live-news