Andrew Bailey, Governor of the Bank of England, said on October 21, that U.S. "first brand" companies and "three colors" companies announced bankruptcy, and high-risk lending to the private credit market "raised the alarm".

U.S. auto parts manufacturer First Brand and auto subprime lender Tricolor declared bankruptcy in September. The two bankruptcies caused losses to credit investors and were reviewed by the U.S. Department of Justice.

According to the Financial Times in the UK, the ¡°three-colour¡± companies packaged their issued loans into bonds and first-brand¡± companies used professional funds to obtain credit with their invoices as mortgages. Wall Street¡¯s approach to packaging secondary mortgages into asset-supported bonds has contributed to the 2008 financial crisis. Loan standards have been relaxed for years, leading to a crash in the price of all financial products involving secondary debt when U.S. house prices fell.

In particular, the ¡°three-colour¡± companies bundled loans issued to borrowers with little credit record and sold them to investors after filing. Just a few months before the company collapsed, some debt cuts also received the highest AAA rating.

During a testimony to the House of Representatives on Monday, Bayley said it remains to be determined whether the bankruptcies of these U.S. companies predict a greater crisis and whether they indicate a more fundamental existence in the private credit market.

However, he also mentioned how repackaged financial products in the past covered up the risks of their underlying assets. "We're certainly starting to see a comeback of some past practices, such as splitting and refining loan structures. If you've been through the pre-financial crisis period, that's when the alarm starts to sound."

Bailey said: "Looking back before the [2008] financial crisis, when we discussed subprime mortgages in the United States, we were told that their scale was too small to pose systemic risks. That judgment was wrong. I'm not saying that this judgment is also wrong, but it just shows the appropriateness of questioning now."

The International Monetary Fund warned last week that U.S. and European banks 'exposure to private credit groups, hedge funds and other non-bank financial institutions reached US$4.5 trillion, which could amplify the impact of any economic downturn and transmit pressure to the broader financial system.

Bailey said in the House of Lords that the Bank of England was considering conducting a "system-wide exploratory scenario test" next year to test the ability of private credit markets to cope with crisis situations. (Bu Xiaoming)