(Bloomberg) -- The private equity industry’s rapid advance into private credit poses potential threats to financial stability, according to a top US bank regulator.

Michael Hsu, the acting comptroller of the currency, said on Wednesday that officials need to keep tabs on risks from PE firms originating more loans and ramping up other activities typically done by banks. He also raised concerns about buyout firms’ increased activity in insurance and creative funding structures.

“Since PE firms are not subject to consolidated supervision, it is not possible for regulators and other outsiders to assess how risky and interdependent these activities are,” Hsu said in remarks prepared for a speech at Vanderbilt University.

PE firms and other so-called nonbanks don’t face the same level of federal oversight as traditional lenders. Hsu said on Wednesday that this disparity is an issue as firms act more and more like banks, adding that regulators need to prevent what he dubbed “the next great blurring.” 

“Without clear guardrails, the line between commerce and banking tends to blur,” he said. “The more incremental and rational the blurring, the harder it is to detect and to address.”

In addition to potential threats from PE’s activities in private credit, Hsu also raised concerns over digital-payment companies engaging in banking activities. He said that firms often start off by facilitating payments, but then offer a suite of services such as pay check deposits and access to credit. 

“From a financial stability perspective, the deposit-taking-like activity warrants the most scrutiny because of the vulnerability it creates to runs,” Hsu said. “Significant data gaps exist, however. The lack of standardized data makes it challenging to aggregate and compare the amount of money nonbank companies manage on behalf of their customers.”

To deal with the looming potential threats, Hsu lauded a recent framework for assessing risks from the US Financial Stability Oversight Council. He said suggested that the effort could further benefit from regulators establishing publicly “tripwires,” or metrics or thresholds, that would trigger the a systemic-risk assessment.  

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“By design, the trip wires would be several steps removed from any formal action by the FSOC,” Hsu said. “The sole purpose and consequence of the trip wires would be to prompt an assessment.”

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