Independent research from the Bank of England lends weight to a broader industry shift: as credit risk migrates into private and non-bank markets, banks, regulators, insurers, and asset managers need an objective, forward-looking view of counterparties that ratings and market prices no longer fully cover.
Summary of Bank of England Takeaways
- Credit risk is increasingly migrating into private credit and non-bank markets. Business overlap between NBFIs and banks has been a growing regulatory focus for several years, yet traditional ratings and market indicators such as CDS and bond spreads offer incomplete, shrinking coverage of this universe.
- Bank of England found that entity-level consensus probabilities of default add meaningful signal to conventional indicators, helping to monitor NBFI default risk where ratings and market pricing are sparse.
- Consensus credit signals identify risk concentrations, early warning of stress transmission via non-bank channels. In periods of disruption, the sector’s structural features can transmit or magnify systemic shocks, giving regulators and market participants more visibility into hedge fund, BDC, and LLP activity.
- Taken together, these findings support more frequent, forward-looking, and independent credit measures — improving monitoring and decision-making for institutions and regulators, and transparency across historically opaque parts of the credit system.
1. The New Credit Risk Landscape
The structure of credit provision has changed. Private credit funds, hedge funds, private equity vehicles, pension funds and other non-bank financial institutions (NBFIs) now originate and hold a growing share of lending that once sat on bank balance sheets. That shift has not reduced the banking system’s exposure to this risk — it has relocated and reshaped it. Banks remain connected to NBFIs as lenders, prime brokers, derivative counterparties and financing providers, and those linkages have grown steadily as a share of banks’ total exposures.
Global regulators have taken notice. The Bank of England, the Financial Stability Board and the Basel Committee have each flagged the growth of NBFI-related exposures, opaque leverage, and cross-border interconnectedness as priorities for ongoing supervisory work. Understanding who banks and markets are exposed to through this channel — and how that credit quality is trending — has become a strategic requirement.
Growth outpaces visibility
NBFI balance sheets and interconnections with banks have expanded faster than the disclosure regimes built to monitor them.
Interconnection compounds risk
A single leveraged fund or private vehicle can sit at the centre of exposures across several banks simultaneously, amplifying any single deterioration.
Regulatory attention is rising
The BoE, FSB and Basel Committee have each made non-bank monitoring and interconnectedness a standing item on the supervisory agenda.
2. The Visibility Gap
The tools that work well for large, listed, rated borrowers do not travel well into this part of the market. Four structural features of the non-bank and private universe limit what traditional approaches can see:
- Limited ratings coverage — the large majority of private funds, vehicles and unlisted counterparties carry no public credit rating at all.
- Thin or non-existent market pricing — without traded bonds or a liquid CDS curve, there is no market signal to fall back on.
- Private ownership and offshore structures — complex or opaque legal structures limit standard disclosure and look-through.
- Inconsistent disclosure — reporting quality and frequency vary widely across jurisdictions and entity types.
This is precisely the gap that consensus, bank-derived credit assessments are designed to fill: a complementary, forward-looking source of credit intelligence built from the internal views of institutions that already lend to, trade with, and underwrite these counterparties.
3. The Bank of England Research
The Bank of England used credit consensus data as an input into its own research on credit risk in parts of the system where public data is sparse. The shape of that work is a practical illustration of the broader case for forward-looking, entity-level consensus data.
| 1 |
Research objective Improve visibility into the credit quality of counterparties — including non-bank and less transparent entities — where public ratings and market pricing are sparse or absent. |
| 2 |
Methodology Entity-level, forward-looking probabilities of default were examined alongside conventional indicators, to test how much additional signal a consensus view of bank credit opinion could add to existing surveillance approaches. |
| 3 |
How consensus PDs were incorporated Credit Benchmark's consensus PDs — built from the anonymized, aggregated internal ratings of contributing IRB banks — were used as an independent, entity-level credit signal, distinct from any single institution's own internal view. |
| 4 |
Why entity-level, forward-looking PDs were valuable Unlike a static public rating, a consensus PD moves with the contributing banks' current opinion of default risk — offering a trend as well as a level, on entities that would otherwise be invisible to public data. |
4. Key Insights From The Bank of England Research
Three themes stand out from how the research put consensus credit data to use:
Coverage
Consensus data extended visibility into counterparties that carry no agency rating and no observable market price — precisely the population that matters most for non-bank monitoring.
Timeliness
Because consensus PDs are refreshed as contributing banks update their own views, they can register a shift in credit opinion well before it would show up in a ratings action or a market price move.
Independence
Built from many institutions' internal views rather than one, consensus data offers a cross-checked signal that is harder for any single bank's blind spot to distort.
5. What It Means for Financial Institutions
The same properties that made consensus data useful to the Bank of England’s research translate directly into practical use cases for banks, insurers, and asset managers:
- Counterparty risk — an independent check on internal ratings for unrated or thinly-covered counterparties, before exposure is added.
- Portfolio monitoring — ongoing surveillance of credit trend across a book, not just a point-in-time rating.
- Model development and validation — an external benchmark to validate or challenge internal rating and proxy-mapping methodologies.
- Stress testing — forward-looking PDs that can feed scenario and stress-testing frameworks where internal data is thin.
- Capital allocation — better-informed capital treatment where regulatory capital is sensitive to the counterparty rating, as under SA-CVA.
- Early identification of emerging deterioration — a trend signal that flags a name moving the wrong way before it becomes a loss.
6. What It Means for Regulators
For supervisors and central banks, an independent, consensus-based credit signal supports the same financial stability objectives from a system-wide vantage point:
- Financial stability surveillance — a forward-looking input into system-wide credit risk assessment.
- Macro-prudential oversight — visibility into where credit risk is building outside the regulated banking perimeter, and how that risk could propagate back into the banking system through banks’ lending, prime brokerage and derivative exposures to non-bank counterparties.
- Monitoring interconnectedness — a consistent, entity-level view across the banks and non-banks that share exposure to the same counterparties.
- Identifying concentrations of risk — sector and geography PD indices that can surface where risk is clustering.
- Cross-border supervisory analysis — a common credit signal that does not depend on any one jurisdiction’s disclosure regime.
- Private market transparency — a practical route to visibility into entities that fall outside standard reporting requirements.
Note: while this paper focuses on the Bank of England’s research, similar themes are relevant in the US and other markets. Recent Federal Reserve initiatives — including a new task force on the quality and timeliness of economic data — are exploring how higher-frequency private-sector information can complement traditional statistics, alongside a broader US regulatory focus on private credit, non-bank financial institutions and growing market interconnectedness.
7. The Future of Credit Risk Monitoring
Credit monitoring is broadening — from a small set of rated, liquid names toward a much larger population of counterparties that are unrated, privately held, or thinly traded. That shift is structural, not cyclical: as private credit and non-bank intermediation continue to grow, the case for more frequent, more forward-looking, and more independent credit measures will only strengthen. Research such as the Bank of England’s is an early, credible signal of where institutional and supervisory practice is heading.
Closing Thought
The significance of the Bank of England's work shows that objective, bank-derived consensus credit assessments are a credible, practical input for understanding credit risk where traditional measures offer limited visibility — and that perspective will only matter more as private markets grow and financial systems become more interconnected.
What the data is
Credit Consensus Ratings aggregate the internal credit views of a consortium of IRB banks into entity-level consensus ratings (21-notch CB21 scale mapped to PDs), with consensus depth, rating trends, and sector and geography PD indices. Coverage concentrates where public signals are scarce: no CDS curve, no traded bonds, no agency rating. Delivered via web application, bulk feed, and Bloomberg.
Next step
Request a peer-comparison analysis on your counterparty or NBFI universe — your internal ratings and coverage against the consensus, scoped to a defined list or peer group.
Contact [email protected] to request your analysis.
Note this paper references this Bank of England published Insights article.