The Federal Reserve Board of Governors member Cook warns that the Central Bank should follow the systemic vulnerability of private credit risks.

Golden Finance reported that The Federal Reserve Board of Governors member Cook stated that given the “increased complexity and interconnectedness of leveraged companies,” officials should monitor how unexpected losses in private credit might spread to the broader U.S. financial system. She added that the recent bankruptcies of private firms in the automotive industry have also exposed unexpected losses and exposures in a wide range of financial entities, including banks, hedge funds, and specialized financial companies. Her remarks echoed the concerns of Federal Reserve Board member Barr, who earlier this week indicated that he views private credit as a potential area of risk. Cook also stated on Thursday that she believes the expanding footprint and asset valuation levels of hedge funds in the U.S. Treasury market represent potential vulnerabilities. Cook noted that despite high asset values, the growth and complexity of the private credit market, and the potential vulnerabilities that hedge fund activity could cause in the Treasury market, the financial system remains resilient. She said, “These emerging vulnerabilities also occur against the backdrop of very significant technological changes, which could ultimately improve financial stability, but also involve a transition period and potential challenges that may require careful and prudent responses.”