Global economy faces “double whammy”, warns financial stability chief

The global economy could face a “double whammy” if market volatility coincides with growing problems in private credit, the head of the world’s financial stability watchdog warned, Euractiv reports.

“We’ve got volatile markets… what if that, in a sense, coincides with one of these other things, let’s say, private credit becoming a much bigger problem?” Andrew Bailey, chair of the International Financial Stability Board (FSB) and governor of the Bank of England, told the European Parliament’s Committee on Economic and Monetary Affairs in Brussels.

“From a financial stability point of view, we have to be very focused on that,” Bailey added. “And I say this ‘double whammy’ point because I think it’s always easy to think about these risks in a very sort of compartmentalised fashion…. We have to think what would happen if they came together.”

Bailey’s remarks come amid turbulent global markets over the past year, driven by US President Donald Trump’s unpredictable tariff policies, challenges to the Federal Reserve’s independence, and escalating tensions with Iran, which have spooked investors and triggered dramatic swings in bond and equity markets.

Private credit—a sector that Bailey described as “relatively opaque”—has also raised alarm, with defaults on leveraged loans increasing. Restrictions on bank lending after the 2008 financial crisis led many non-bank lenders, including hedge funds and asset managers, to provide highly leveraged loans to risky companies seeking higher returns.

Senior banking executives have echoed concerns. JP Morgan CEO Jamie Dimon warned of systemic risk, noting, “I probably shouldn’t say this, but when you see one cockroach, there are probably more,” after the collapse of Ohio-based auto firm First Brands, which faced more than $11 billion in liabilities.

Bailey drew parallels with the mortgage-backed security crisis that helped trigger the 2008 global recession, noting, “There is a risk that when investors start to observe more of these incidents, that begs a bigger question about their confidence in the system as a whole.”

He tempered the warning with a note of reassurance: “One of the things that we are seeing at the moment is a resilient banking system, and that, of course, is a good thing.”

By Vafa Guliyeva