The Financial Stability Board (FSB) is warning that global markets could be heading toward a chain reaction in which tighter funding, war-driven volatility, and deepening cracks in non-bank finance converge into what its chair calls a possible “double or triple whammy” for financial stability.
In a letter sent ahead of the April 16 G20 meeting, FSB Chair Andrew Bailey laid out a scenario in which several fragile parts of the financial system crack at the same time rather than one by one.
Bailey, who also serves as governor of the Bank of England, said the Middle East conflict has already increased energy prices and government bond yields, and that these shocks could collide with stretched asset valuations, concentrated leverage in the non-bank financial sector, and growing anxiety over private-credit pricing.
He identified three areas that require heightened monitoring: sovereign bond markets, asset valuations, and private credit.
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Private credit is cracking first
Much of the recent attention on financial fragility has centered on private credit.
Private credit is a large and fast-growing corner of non-bank finance in which funds lend directly to companies rather than routing them through traditional bank channels. The sector has grown to roughly $1.8 trillion, and the past few weeks have exposed just how quickly that confidence can deteriorate.
Blue Owl Capital limited withdrawals from two of its largest private-credit funds after investors sought to redeem roughly $5.4 billion in the first quarter. At its flagship $36 billion fund, redemption requests hit 21.9% of shares outstanding, while its smaller, technology-focused vehicle saw requests reach a staggering 40.7%.
Blue Owl, like most of its peers, capped redemptions at 5%. A Barings-managed fund did the same the next day, limiting withdrawals after investors asked to withdraw 11.3% of shares. Apollo, Ares, and BlackRock all imposed similar caps during the first quarter of the year.
These aren't isolated incidents that happened by chance. These redemption caps are a real structural test of what happens when funds hold assets that take weeks or months to sell at a fair price, yet promise investors periodic access to their cash.
In calm markets, the arrangement is smooth, and few have issues with it. But in times of crisis and heightened volatility, when too many investors head for the exit at once, the mismatch between what a fund owns and what it can quickly liquidate becomes dangerous.
However, Bailey's letter made clear that private credit is only one of the vulnerabilities he's tracking.
The FSB is concerned that redemption pressure at private-credit funds could reinforce tighter funding conditions and overstretched valuations elsewhere, producing a cascading sequence in which each problem makes the next one worse.
The danger looming outside traditional banks
Traditional banks are heavily regulated and hold capital buffers under frameworks such as Basel III, which were built after the 2007-09 financial crisis to strengthen resilience. Bailey said that this enabled banks to remain resilient through the current shock.
The bigger concern now sits outside the banking perimeter, in what regulators call non-bank financial intermediation, or NBFI. This broad ecosystem includes hedge funds, insurers, pension funds, and private lending vehicles, and since 2008, a significant share of credit creation and risk-taking has migrated into it. The rules are different, leverage can be higher, and transparency is often limited.
Leverage is the main accelerant here. When borrowed money amplifies positions and prices move sharply, leveraged investors are forced to sell at the same time, which pushes prices down further and radiates stress into adjacent markets.
In sovereign bond markets, the FSB warned that a limited number of funds pursuing similar high-leverage strategies have increased the risk of a disorderly unwinding that could drain liquidity from core government bond markets and trigger cross-border spillovers.
The connections between banks and non-bank lenders make this harder to contain than it might appear.
US bank lending to non-depository financial institutions has almost quadrupled over the past decade, surging to about $1.4 trillion as of the end of 2025, according to Moody's Ratings. That lending now accounts for roughly 11% of total bank loans and is the fastest-growing portion of bank balance sheets.
The Federal Reserve is now asking major US banks for details about their exposure to private credit following the surge in redemptions and a rise in troubled loans. The Treasury Department is separately planning discussions with state insurance regulators about exposures in the same sector.
How the contagion spreads, and what it means for crypto
The chain that concerns the FSB follows a familiar path.
A geopolitical or macroeconomic shock raises uncertainty, oil and bond yields move sharply, and funding costs rise. Investors then begin questioning whether asset prices still reflect reality, and redemption requests rise, usually first at less-liquid private credit funds.
Those funds then gate withdrawals or sell assets in weak markets to raise cash. Banks and insurers reassess their exposures, credit becomes harder to get for companies and borrowers, and risk assets reprice aggressively.
Bailey specifically warned about a scenario in which markets begin to price a much larger hit to global economic growth, triggering abrupt repricing in equities at the same moment that scrutiny of private-asset valuations intensifies. Global asset prices, he noted, are still significantly elevated by historical standards, and sectors where valuations were stretched even before the conflict are particularly vulnerable if economic conditions deteriorate.
The consequences reach well beyond Wall Street.
Businesses face more expensive refinancing and pickier private credit lenders, weaker firms struggle to roll over loans, and hiring and expansion plans can stall. Retirement portfolios can take hits through indirect exposure to non-bank assets even without a single bank failure.
For crypto, this type of broad financial stress tends to weigh on liquidity-sensitive assets in the near term. This is especially important for Bitcoin. When markets shift into risk-off mode, Bitcoin and Ethereum have historically sold off alongside equities, and tighter funding conditions make leverage both more dangerous and more expensive across all markets.
We might see the demand for stablecoins rise as a defensive measure, but it's the speculative appetite that usually disappears first.
The timing of Bailey's letter is also important in its own right.
The warning arrived just days before G20 finance ministers and central bank governors convene in Washington alongside the IMF spring meetings. The FSB said that it will publish a dedicated report on private-credit vulnerabilities in the near future. It's also collaborating with the International Association of Insurance Supervisors to address risks posed by growing interlinkages among private equity, private credit, and the life insurance sector.
Earlier this year, the FSB separately warned about vulnerabilities in government-bond-backed repo markets, a further signal that the connective tissue among financial institutions can become fragile during periods of stress.
The central paradox of Bailey's warning is hard to ignore. Banks may be stronger than before 2008, but the financial system can still be fragile because the risks have migrated to places where they are harder to see, harder to regulate, and almost impossible to contain once they start moving.
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