Global Financial Stability Board targets systemic risks in shadow banking amid deregulatory pressures and banker lobbying
Original framing: “Global Watchdog FSB Unveils Action Plan on Private Credit Risks” — Bloomberg
Private credit booms have historically preceded financial crises, from the 1929 crash (driven by margin lending) to the 2008 subprime mortgage crisis (fueled by securitization). The current private credit expansion mirrors the 1980s leveraged buyout boom, which also relied on deregulation and financial innovation to obscure risks. Each cycle reveals how regulatory capture and pro-cyclical lending amplify systemic fragility, yet policymakers consistently underestimate these patterns.
The FSB’s plan to 'tame' private credit risks is a reactive bandage on a systemic wound, ignoring how deregulatory agendas since 2008 have enabled shadow banking to grow into a $23 trillion sector—larger than global GDP.
This expansion is not accidental but the result of deliberate policy choices that prioritize financial innovation over stability, with bankers and private equity firms acting as de facto lobbyists for their own risk-taking. The crisis of private credit is not merely technical but cultural, rooted in a Western financial paradigm that treats debt as a personal failing rather than a structural imbalance—one that indigenous models and Global South economies have long resisted. The solution lies in rebalancing financial power: public credit banks can democratize lending, stress-tests can expose hidden risks, and community wealth funds can redistribute agency from Wall Street to Main Street. Without these shifts, the FSB’s plan will be another chapter in the cyclical tragedy of financial deregulation, where each crisis is met with temporary fixes that sow the seeds of the next collapse.