Never mind the black swans, there are visible, known risks in the global economy that have experts concerned of potential future damage to the financial system.

Unverified auto-loans increase

This week Global Finance Magazine asks if the US auto sector could be a source of future financial instability. It points to US auto lenders exposed to increasing levels of risk due to lax customer verification and credit check standards. For example, one bank provider of financing for auto purchases (Santander) checked the income of only 8 per cent of its borrowers, according to a report from Moody's credit rating agency. This points to a huge amount of unknown and unquantifiable credit risk in the auto-financing business. There have also been reports that auto-finance providers are seeing increasing losses. While the auto-finance sector is not as large as the sub-prime mortgage loans market that sparked the 2007-8 crisis, a loss of confidence in the sector could damage employment and consumption. Global Finance Magazine reports: “As profits decline for creditors and banks that underwrite these loans, they may try to untie themselves from the auto-loan market, leading to a loss of confidence and crisis in the financial system.” But the magazine's report adds that it is, however, unlikely that the auto-loan market will cause a significant economic crisis in the US in the near future.

The Financial Times also reported yesterday that a blog written by staff at the Bank of England has warned of increasing risk in the UK's auto-lending sector, with car finance providers taking more risks to attract consumers as falling vehicle sales and rising import prices take effect. The blog states that the auto-financing industry “continues to accumulate credit risk, predicated on the belief that used car values will remain robust”. Outstanding car loans in the UK stood at £58 billion at the end of March this year, according to a Bank of England estimate.

UK credit card debt at record levels

The UK's rising level of credit card debt is another area of emerging financial risk. There is £67 billion of credit card debt in the UK, compared with £1.3 trillion of mortgage debt, according to figures quoted by the FT. Consumers have been borrowing much more on credit cards in the UK – this chart published by the FT shows that credit card lending to individuals has increased from around £54 billion in 2007 to around £68bn this year.

These record levels have serious consequences for individuals who find themselves in financial difficulty and are unable to repay the outstanding amounts on their credit cards. But there are also risks for lenders, who could face billions of pounds of losses if a recession hits and people are unable to pay off their credit card bills.

China's risky growth strategy

Another area of the global economy that is causing concern is China's rapid growth. The government in Beijing aims to double the size of the country's economy from 2010 and 2020. But this has meant a jump in private sector debt, while the country's total debt has quadrupled since the financial crisis to stand at $28 trillion. The International Monetary Fund (IMF) has stated: “International experience suggests that China’s credit growth is on a dangerous trajectory, with increasing risks of a disruptive adjustment and/or a marked growth slowdown.”

The IMF states that China's rapid growth has come with increased risks, particularly associated with large increases in public and private debt. It stated: “Such large increases have internationally been associated with sharp growth slowdowns and often financial crises.” The IMF briefing urges China to replace its numerical growth targets with a sustainable growth strategy.