A report from Moody's Analytics warns that the burgeoning private credit market could become a source of contagion during economic downturns. It echoes concerns from JPMorgan CEO Jamie Dimon about the industry's lack of transparency and potential interconnections that could amplify financial stress. As institutional investors like insurance companies hold diverse stakes across private credit, corporate bonds, and other assets, losses in one sector could force liquidations in others, exacerbating financial instability. Dimon has compared the risks to those seen during the mortgage crisis, though some industry leaders argue that private credit enhances overall market safety.
I think that people who haven't been through major downturns are missing the point about what can happen in credit, Jamie Dimon said.
The same institutional investors...might hold stakes in private credit funds, CLOs, and public corporate bonds, leading to a potential 'locus of contagion.'
If losses occur in one investment, that investor may be forced to liquidate assets elsewhere, propagating stress, the report warned.
Every dollar that moves out of the banking industry is a risk, according to Apollo CEO Marc Rowan, challenging Dimon's assertions.
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