Federal Reserve Barr warns: Private credit risks may spill over into the financial system through "psychological contagion"

On May 4, Federal Reserve Governor Barr said that pressure in the private credit sector could trigger "psychological contagion" that could lead to a broader credit crunch. He once again warned that Wall Street should not be relaxed at a time of rising risks. Barr said that while the direct link between banks and private credit does not currently appear to be "particularly worrying," other areas such as overlap between the insurance industry and private lenders are worthy of attention. "There is also a psychological contagion problem," he said."People may not look at private credit and say,'This is a special problem, these are high-risk loans, and the rest of the corporate sector is different,' but rather,'Wow, there seems to be a rift in our corporate sector. Maybe there is a rift in the corporate bond market here, too.'" He added,"Then there could be a credit contraction, and that could lead to greater financial stress." (East News Agency)