The Bank of England is weighing plans to launch a system-wide stress test of the UK’s private credit market, as regulators grow increasingly concerned about the sector’s rapid expansion and potential to amplify financial instability, according to a Bloomberg report citing sources familiar with the matter.

The central bank has begun consulting with asset managers, private equity firms, and institutional investors about a “system-wide exploratory scenario” (SWES) to examine how shocks could spread across the $1.7tn global private credit market. A decision is expected before Christmas, with the test likely to begin within the next year.

BoE Governor Andrew Bailey warned that private credit’s deepening links with the banking system could heighten systemic vulnerabilities. “If you go back to before the financial crisis, we spent time looking at subprime mortgages, and we decided, until it happened, that they were not systemic,” Bailey said during the IMF and World Bank meetings in Washington.

Private credit has become one of the fastest-growing corners of global finance, as borrowers increasingly turn to private equity firms, debt funds, and alternative lenders in place of traditional banks. While the sector has provided crucial liquidity to mid-market companies, regulators warn that its scale and opacity could create hidden leverage and liquidity risks.

In July, the BoE said “significant data gaps” were preventing regulators from fully understanding how stress in private markets could interact with the broader financial system. The proposed stress test would extend lessons from the bank’s 2024 exercise on UK financial markets, which drew participation from more than 50 asset managers, pension funds, insurers, and banks.

A BoE spokesperson declined to comment on the potential new programme.

The move mirrors growing scrutiny from global watchdogs. The Financial Stability Board, chaired by Bailey, has warned that private credit’s connections to the wider financial system warrant closer oversight, while the European Central Bank is examining banks’ exposure to the asset class.

If implemented, the BoE’s initiative would be among the first regulatory stress tests globally to cover private credit in its entirety, marking a pivotal step toward greater transparency and supervision in one of the most dynamic areas of private markets.

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