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Attention Needed on Private Credit and Shadow Banking
The potential threat to the economy lies in the unwinding of private credit and shadow banking activities, especially with the significant amount of debt due post-2020. Regulators are just beginning to focus on the non-banking sector, where banks often provide financing, creating a spill-over effect. The leverage and risks in private credit are acknowledged by the IMF, with regulators still in the phase of research rather than active regulation. This situation could catch regulators unprepared, necessitating a closer watch on the impact of high rates and economic downturns.