Tag: World News

Senior Wall Street figures have voiced growing concerns that the global banking system could be facing serious risks from the USD 4.5 trillion private credit market. The main worries centre on risky lending practices, potential contagion, and a lack of transparency, all underscored by recent high-profile bankruptcies. Because the private credit market operates outside traditional banking regulations, it tends to carry higher leverage and riskier loans, which could spill over into the wider financial system and impact banks and investment firms around the world.

The sense of unease across Wall Street has deepened amid fears that large-scale defaults in the private credit market could trigger a broader systemic shock. Experts note that global credit has expanded rapidly over the past decade, with particularly sharp growth in private credit. Senior finance figures explain that this wave of expansion typically starts with private credit, then extends into high-yield bonds* and leveraged loans**, both of which amplify financial risk

*High Yield Bonds – In finance, a high-yield bond is one rated below investment grade by credit agencies. These bonds offer higher returns but carry a greater risk of default. They are often issued by start-ups, highly leveraged companies, capital-intensive industries, or so-called “fallen angels”, firms that once held investment-grade ratings but have since dropped below the threshold.

**Leveraged Loans – These are high-risk loans granted to companies with weak credit histories or heavy debt loads. Because of the elevated risk, they come with higher interest rates. There’s no strict definition for what constitutes a leveraged loan, but they are generally identified by low credit ratings or large margins above benchmark interest rates, such as floating-rate indexes that determine how loan costs fluctuate over time.

Investor anxiety intensified recently when two major car parts suppliers in the private credit space, both carrying multi-billion-dollar debts, declared bankruptcy amid fraud allegations. At the same time, two regional banks revealed they were sitting on several irrecoverable bad loans. The news sparked a sharp sell-off across both U.S. and U.K. stock markets last week. Analysts said many investors fear this could be just “the tip of the iceberg,” prompting a rush to safer assets.

In the U.K., data showed that within the FTSE 100, investors sold off shares in Schroders and ICG, both seen as particularly exposed to the private credit market. Banking stocks also fell sharply, reflecting concerns that traditional lenders are more deeply tied to this market than previously thought. The International Monetary Fund (IMF) recently warned that global banks’ exposure to private credit, often dubbed the “shadow banking sector”, amounts to around USD 4.5 trillion, a figure larger than the entire U.K. economy. The IMF also cautioned that as many as one in five banks could face significant trouble if the sector deteriorates further.

IMF Managing Director Kristalina Georgieva has publicly admitted to “sleepless nights” over the potential risks stemming from non-bank financial institutions. Financial commentators say her concerns arise from the lack of regulatory oversight in this sector, where non-bank lenders can take on risks that traditional banks would likely avoid. The absence of third-party scrutiny only compounds the problem, leaving markets in the dark about the true scale of exposure. The world learned painful lessons during the 2007–2009 global financial crisis, and with the collapse of Silicon Valley Bank in 2023 still fresh in memory, few are willing to rule out another shock on the horizon.

Over the last five years, India’s equity derivatives* market has become the largest in the world, with a daily turnover (including options**) of circa USD 3 Trillion. India’s SEBI (the Securities and Exchange Board of India) has recently become concerned regarding this area of the market, where it feels that certain large participants have been allegedly using manipulative practices through the use of sophisticated technology, thereby gaining illegal profits and thus affecting the market’s integrity.

*Equity Derivatives – A derivative is a contract (e.g. futures, forwards, swaps and options) whose value is derived from the performance of an underlying asset for example, bonds, commodities, currencies interest rates, or in this case equities or stocks and shares. An equity derivative is a financial instrument which derives its value from the performance of the underlying stocks or shares and allows investors to gain exposure to the equity market without owning the underlying shares, and are widely used for hedging, speculation, and investment purposes.

**Options – A financial option is a contract that gives the owner or the holder the right but not the obligation, to buy or sell an underlying asset, (in this case equities, stocks) set at a specific price, (the strike price) on or before a certain date (expiration date). Options are a type of derivative meaning their value is derived from the underlying asset.

The SEBI are currently investigating an American company Jane Street Group over alleged irregularities manipulation of trades in the above market, but according to officials, (who wish to remain anonymous) the investigation will expand to cover wider markets. The markets being investigated are the Mumbai based NSE, (National Stock Exchange of India Ltd.’s) flagship gauge, the Nifty 50*, and BSE (Bombay Stock Exchange) Ltd.’s benchmark Sensex**. The SEBI flagged manipulated and fraudulent trades that mainly took place in the Nifty 50’s weekly options contracts and its underlying constituents in the cash market.

*Nifty 50 – This is India’s leading stock market index and represents the performance of the 50 largest and most liquid companies listed on the NSE. It serves as a benchmark for the Indian equity market and is used by investors and analysts to gauge market trends and the overall health of the Indian economy.

**BSE Sensex – Sensex stands for Stock Exchange Sensitive Index and is one of the oldest indices of India and consists of 30 stocks which are listed on the BSE and represent some of the largest corporations which are also the most actively traded stocks. The BSE is allowed to revise the listing periodically and this usually takes place twice a year in June And December. Sensex is crucial to investors as it gauges market movements and aids understanding in the overall sentiment of the economy and industry-specific developments.

Last week, on Friday, July 4th, 2025, the SEBI through an interim order announced they would be seizing Rupees 48,4 Billion (USD 570 Million) from Jane Street in what they said was unlawful gains made by the company. In consequence, and after an in-depth investigation, the SEBI has barred four Jane Street entities from accessing its securities markets including the confiscation of the aforementioned rupees. Furthermore, the SEBI have accused Jane Street of adopting an “Intraday Index Manipulation Strategy” whereby in early day trading the company aggressively bought constituent stocks and futures thereby pushing up the index, followed by aggressive selling later in the day where the trades were reversed.

The SEBI concluded that the trading actions employed by Jane Street lacked any economic rationale and were designed specifically to artificially move index levels to benefit their trading positions whilst at the same mislead other market participants. Headquartered in New York, Jane Street Capital employs more than 2,600 people in six offices in New York, London, Hong Kong, Singapore, Amsterdam, and Chicago and trades a broad range of asset classes on more than 200 venues in 45 countries. The company totally refutes the allegations.