Federal Reserve's Barr warned that private lending risks could spill over into the financial system through "psychological contagion."

CoinFeed reported on May 3rd that, according to Jinshi News, Federal Reserve Governor Barr stated that stress in the private lending sector could trigger a “psychological contagion,” leading to a broader credit crunch. He reiterated his warning that regulation of Wall Street should not be relaxed amid rising risks. Barr stated that while the direct link between banks and private lending does not currently appear “particularly worrying,” other areas, such as the overlap between the insurance industry and private lending institutions, warrant attention. “There’s also a problem of psychological contagion,” he said. “When people see private lending, they might not say, ‘This is a special problem, these are high-risk loans, the rest of the corporate sector is different,’ but rather, ‘Wow, our corporate sector seems to be cracking. Maybe there’s cracking in the corporate bond market over here too.’” He added, “Then there could be a credit contraction, and that could lead to even greater financial stress.”