A decade of low interest rates saw the private financing sector grow significantly, as companies reached for cheap funding and investors sought higher yields, Benjamin said.
Quantifying banks' exposure to the sector was hard, he said, echoing concerns expressed by global regulators.
"Crystallisation of risks in private markets in other regions could also spill over to UK institutions," Benjamin told parliament's Treasury Committee during a hearing on his appointment to the BoE's Financial Policy Committee (FPC).
The FPC, made up of representatives from the BoE and Financial Conduct Authority, is responsible for spotting risks to the financial system and setting the tone and direction of regulation.
Benjamin said the impact of climate change on finance was core to the FPC's remit, and that it would also take a closer look this year at the use of artificial intelligence in financial services.
"The picture is changing rapidly, and it is not clear that sectoral regulation is keeping pace or is appropriately calibrated to consider the complexity of the challenge," he said.
He said he was also concerned that bilateral financial transactions between banks and non-banks were not backed by sufficient margin in case they turn sour, creating potential "moral hazard" or risks that others would have to deal with.
"The players assume things will be fine most of the time and if not fine, the risk will be for someone else," Benjamin said.
(Writing by Huw Jones)
By Huw Jones and David Milliken
