The Trump administration extended a sanctions waiver for Russian oil giant Lukoil, days before Washington’s measures were set to take effect.  The U.S. Treasury Department issued licenses to allow Lukoil to keep operating many of its businesses around the world until Dec. 13 — and until April 2026 for its refinery in Bulgaria — as the company looks to sell off its foreign assets. Last month, American President Donald Trump announced “tremendous” new sanctions targeting Lukoil and Kremlin-owned Rosneft over Moscow’s refusal to negotiate an end to its war in Ukraine. The punitive measures had been set to come into force on Nov. 21. The measures, announced on Oct. 22, were “a result of Russia’s lack of serious commitment to a peace process to end the war in Ukraine,” the U.S. Treasury said.  Lukoil subsequently announced it would sell its overseas assets but has yet to find a buyer after a deal with Swiss-based firm Gunvor fell through when Washington blocked it. U.S. private equity firm Carlyle is considering purchasing the vast international holdings, according to Reuters. Potential buyers now have until Dec. 13 to negotiate with Lukoil.  It’s expected Washington will only authorize a sale if it completely severs ties with Lukoil and the funds from that sale are placed into a blocked account that Lukoil cannot access until the sanctions are lifted. Trump’s sanctions sent European countries scrambling to prevent fuel cutoffs. Germany won a six-month exemption for its Rosneft-owned Schwedt refinery, which was formalized by Washington on Friday, while Bulgaria moved to nationalize the country’s enormous Lukoil-owned Burgas refinery.  Hungary locked in a one-year exemption to keep purchasing Russian oil after Prime Minister Viktor Orbán’s visit to the White House earlier this month. 

Warning signs from an obscure part of the financial markets have got policymakers rattled, and one of their oldest and most profound fears may be about to get very real. As the world’s top central bankers and finance ministers descend on Washington for the annual meetings of the International Monetary Fund and World Bank, signs are increasing that the next bout of financial instability may be around the corner. The most worrying signs are arguably not from the foreign exchange market, where confidence in the dollar — the global system’s anchor — is gradually eroding, nor from the stock market, where the AI frenzy has driven equities to record highs in the U.S. and Europe. Rather, it’s what’s happening in the credit markets that’s sending a shiver down the spine of all those who remember 2008. The collapse of U.S. auto loan dealer Tricolor and parts supplier First Brands Group hints that something may be wrong in the world of private credit. Private credit refers to loans that are neither issued by banks nor publicly traded on an exchange like corporate bonds. It’s a broad description, and it can refer to anything from the aforementioned car loans issued by special credit suppliers to private funds lending money to help buy a family-owned company or financing for a new apartment block. It’s a young market, but has grown at breakneck speed. Goldman Sachs estimates it’s worth $2.1 trillion, and private equity companies, in particular, have made a fortune from it, helped by a vast amount of leverage. Because the money isn’t lent by banks, and because it’s structured as a private deal off the public markets, it’s a corner of the financial ecosystem that’s particularly hard to oversee — even when, as with Tricolor, the loans are then repackaged into tradable bonds. That means that if something is going disastrously wrong, it might only be detected once it’s too late. Officials are alarmed that something like that might be happening. For years, banking regulators have congratulated themselves on stamping out the kind of excessive risk-taking, questionable ethics and shoddy governance that caused the last financial crisis. But all along, they have fretted that, far from being dead, such behavior had just moved to other parts of the financial system outside their reach. In a speech last week, European Central Bank President Christine Lagarde warned that it was “imperative” to improve transparency in the non-bank financial sector, whose assets are now bigger than those of the regulated banking sector. “Policymakers must do so sooner rather than later,” she said. The Bank of England also took up the theme earlier this week, its Financial Policy Committee warning that “the risk of a sharp market correction has increased.” It said the defaults in the U.S. “underscore some of the risks the FPC has previously highlighted around high leverage, weak underwriting standards, opacity, and complex structures.” THE WHEELS COME OFF Texas-based Tricolor was an auto loan provider that lent to riskier clients, notably undocumented migrants. First Brands, meanwhile, is a car parts supplier that used opaque and complex financing schemes to pay its suppliers — until it wasn’t able to anymore. One of its creditors, Raistone, alleges that some $2.3 billion that it was owed “simply vanished.” Shares of investment bank Jefferies tumbled this week after it declared it had $715 million in exposure to First Brands. Swiss giant UBS, meanwhile, says it has $500 million at risk. The big question is whether the twin bankruptcies — concentrated in an inherently riskier segment of the market — are just two accidentally similar one-offs, or whether they are the first signs of a broader crisis brewing. Credit rating agency Fitch said defaults in the private credit market rose to 5.5 percent in the second quarter of the year, up from 4.5 percent in the first quarter. Meanwhile, in January, Fitch said auto loan payments that were 60 or more days late among the least creditworthy (subprime) borrowers were at the highest level on record, at 6.6 percent. A growing body of academic literature has found extensive links between non-bank financial institutions (NBFIs) — a category that includes hedge funds and private equity, as well as private credit — and the traditional banking sector. “Through these linkages, shocks can propagate rapidly across entities, sectors, or jurisdictions, especially when multiple institutions respond simultaneously to market stress,” said the authors of a paper at this year’s ECB research conference in Sintra, Portugal. They wrote that nearly one tenth of banks’ assets in the European Union were claims on NBFIs, and that 10-15 percent of banks’ deposits also came from non-banks. Loriana Pelizzon, deputy scientific director at the Leibniz Institute for Financial Research and one of the authors of the paper, said she wasn’t overly concerned about the two bankruptcies, given the relatively small size of the auto financing market. However, she said that interlinkages between European NBFIs and the U.S. financial system needed to be monitored, given the scale of the investments. “There’s a significant amount — trillions and trillions invested — in the U.S.,” she said, noting that investment chains are often long and complex, and that regulators lack insight into them. “The question is whether this is just a couple of rotten apples,” said Davide Oneglia, director at economic consultancy TS Lombard. He said that the risk in the private credit segment will grow further if U.S. interest rates don’t fall as quickly as expected, for example, due to high inflation. That would put a further squeeze on private credit providers. IN PLAIN SIGHT But it’s not just private credit that has policymakers on tenterhooks. The benchmark U.S. stock index S&P 500 is now trading at nearly 30 times the expected earnings of its components, far above its long-run average, and closer to the freak levels seen during the Dotcom boom and the pandemic. Over the last three years, the S&P has risen over 80 percent, largely powered by the performance of U.S. tech stocks on the back of a boom in AI investment. Companies have invested some $400 billion to build out the infrastructure — microchip factories and data centers — that powers AI. Should that money turn out to be misspent, for example, if AI doesn’t provide the productivity gains that investors are betting on, that bubble will burst with painful consequences. In parallel, unbridled government spending throughout the developed world, from the U.S., to Europe and Japan, have pushed market interest rates higher, amid growing doubts that governments can ever repay the debts they are building up. That has also helped push the price of gold — seen as a safe asset that won’t lose value — higher, with some investors piling into both gold and Bitcoin to avoid the debasement of their investments through inflation. It’s not clear which of these — if any — will light the wick of the next global financial meltdown. But what is clear is that policymakers will have no shortage of threats to obsess over next week.

U.S. Senator Elizabeth Warren has called for a former Trump-appointed banking regulator to be dismissed from the global financial watchdog, warning he is putting the world’s economic stability at risk. Randal Quarles, who was vice chair of supervision at the U.S. Federal Reserve from 2017 to 2021 where he oversaw a wave of deregulation, was last month chosen to lead a worldwide review of post-2008 financial crisis reforms for the Financial Stability Board. In a letter addressed to FSB Chair Andrew Bailey, obtained by POLITICO, Warren blamed Quarles’ deregulatory measures for the collapse of three U.S. banks including Silicon Valley Bank in 2023 and warned he would bring the same mindset to global standards. “Mr. Quarles spent his tenure as a top financial regulator in the United States weakening safeguards for megabanks at the expense of financial stability and the American public,” said Warren, a former U.S. presidential hopeful who is the most senior Democrat on the Senate banking committee. “It would be deeply troubling if this FSB review became a mechanism to coordinate the easing of post-2008 rules across the globe.” She said Quarles’ background “demonstrates that he is the wrong person to lead such a review.” She called on Bailey to “consider terminating the appointment and conduct your own search for a suitable replacement.” Bailey, who is governor of the Bank of England, became FSB chair after Quarles’ appointment. The warning came as the FSB, a global body that monitors and coordinates national financial regulations, issued new guidance on the regulation of nonbank financial groups, such as hedge funds. The guidance recommended capping the amount of borrowing these groups can do, but left up to national regulators to determine the details. ROLLING BACK SAFEGUARDS In the years following the 2008 global financial crisis, countries clubbed together and tasked the FSB with coordinating national regulators to prevent a similar crisis happening again. But in 2017, with momentum shifting back to deregulation, newly-elected U.S. president Donald Trump nominated Quarles to head up the Fed’s banking supervision arm. Warren’s main criticism of Quarles relates to his implementation of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which gave the Fed discretion to apply tougher regulatory standards to large banks with assets of between $100 billion and $250 billion. “Under the law, Mr. Quarles had discretion to apply these rules … [but] he and other Trump-installed regulators refused to do so,” she said. She said Quarles also led the rollback of rules prohibiting banks from making “risky proprietary bets with customer deposits and from investing in or sponsoring hedge funds or private equity funds.” Both of these contributed to the collapse in 2023 of Silicon Valley Bank, she said. As well as calling for Quarles’ termination, the letter asks whether his appointment is an indication that the FSB sees “this review as an opportunity to coordinate the easing of post-2008 financial safeguards.” Neither Quarles nor the FSB immediately responded to a request for comment.