US private-capital companies, including Blackstone, Apollo Global Management, and KKR, have agreed to participate in an upcoming Bank of England stress exercise.
The exercise aims to examine how the private-credit sector might respond to a significant financial shock. The initiative, described as a system-wide exploratory scenario, is scheduled for next year and is expected to extend beyond private-credit providers to banks, insurers and pension funds.
The planned exercise follows a period of heightened regulatory scrutiny of private credit. Supervisory authorities in several jurisdictions have expressed concern about the speed at which the sector has expanded and about its exposure to potential defaults, particularly after recent failures such as that of US auto-parts company First Brands. Regulators have indicated that they see parallels with previous episodes of market stress and are seeking to understand better how shocks in non-bank lending could spread through the financial system.
Wider participation anticipated
Alongside Blackstone, Apollo and KKR, Ares Management has also reportedly agreed to participate in the hypothetical assessment. According to the reporting, the BoE is expected to publish further details later in the future, outlining which private-credit providers have confirmed their involvement and setting out the parameters of the scenario to be tested. The Financial Times cited one person familiar with the project who indicated that the authority may wait until closer to the publication of its semi-annual financial stability report to release more information.
The BoE carried out its first market-wide stress exercise in 2024, focusing on how major non-bank financial institutions would respond to a sudden decline in bond markets. That exercise highlighted the need to monitor the resilience of companies operating outside the traditional banking sector, particularly those offering highly leveraged or less transparent forms of credit.
