U.S. Federal Reserve Governor Michael Barr said stress in private credit could spark "psychological contagion" leading to a broader credit crunch, Bloomberg News reported on Sunday.

While direct links between ‌banks and private credit do not yet ​appear "super worrisome," there were other areas of concern such as the insurance sector's overlaps ⁠with private lenders, Barr said in an interview ​with Bloomberg News.

"People might look at private credit, ⁠and instead of saying, 'This is an idiosyncratic problem, these were high-risk loans, the rest of the corporate sector is ‌different,' they might say, 'Wow, there seem ​to be cracks ‌in our corporate sector. Maybe over here in the corporate bond ‌market, there are also cracks,'" Barr said.

Barr also added that "then you could have a credit pullback, and ⁠that could lead ‌to more financial ⁠strain."

Private credit firms have been under stress because of ⁠the market's ⁠recent downturn with some investors retreating from these investments due to worries ‌about valuations and lending standards following a handful of high-profile bankruptcies.

Fed Chair Jerome Powell said in March ‌central bank officials ​are watching ‌developments in the private credit sector for signs of trouble, but do not currently see ​issues there bringing down the financial system as a whole.