HSBC Holdings is conducting a review of its relationships with hedge funds and smaller banks active in private credit markets, as concerns grow over potential contagion following a series of corporate defaults, according to a report by Bloomberg.

Pam Kaur, HSBC’s chief financial officer, said the review aims to assess “second- and third-order risks” tied to hedge funds and lenders with significant private credit exposure, following recent high-profile collapses of US auto-parts supplier First Brands Group and subprime lender Tricolor Holdings.

While HSBC’s own direct exposure to private credit remains modest — in the “single-digit billions” — Kaur said the bank is applying a “rigorous credit framework” and monitoring the situation closely.

The scrutiny comes as global banks re-examine counterparty relationships with alternative credit managers. Market volatility and rising default risks have prompted calls for tighter oversight, with JPMorgan’s Jamie Dimon warning that recent failures could signal broader stress in the sector.

HSBC executives have also pointed to the evolving sophistication of financial frauds, with Michael Roberts, head of corporate and institutional banking, noting earlier this month that the industry “needs to up its game” as bad actors become more sophisticated.