Fed/Treasury probe private credit

The Federal Reserve is asking big U.S. banks for details on their ties to private-credit firms as regulators test whether stress in the market could spread. (bloomberg.com) Bloomberg reported on April 10 that Fed examiners want granular information on banks’ exposure after a jump in fund redemptions and more troubled loans in private credit. Reuters separately reported on April 1 that the Treasury Department will hold meetings with domestic and international insurance regulators starting in April and running into early May. (bloomberg.com) (reuters.com) Private credit is lending done outside banks and public bond markets, usually through funds run by firms such as Apollo, Blackstone, Ares, Blue Owl and KKR. Fidelity said the asset class has grown to about $1.8 trillion over the past 16 years as banks pulled back after the global financial crisis. (fidelity.com) Regulators are focusing on the links, not just the loans. Treasury’s planned talks are set to cover fund-level leverage, private-credit ratings, offshore reinsurance and the liquidity of private-credit investments held by insurers. (reuters.com) That insurance angle is large enough to matter on its own. Insurance Business reported this month that up to one-third of life insurers’ roughly $6 trillion in assets are tied to private credit and related structures, a channel regulators worry could carry losses into more tightly regulated balance sheets. (insurancebusinessmag.com) Treasury Secretary Scott Bessent flagged that concern in February at the Economic Club of Dallas. Reuters reported that Bessent said Treasury gets involved when assets move from private-credit lenders into regulated institutions such as pension funds, banks and captive insurers. (reuters.com) Federal officials have been laying groundwork for months. The Financial Stability Oversight Council’s 2024 annual report said it was paying closer attention to the rapid growth and risks of private credit, including spillovers through interconnections across the financial system. (fdic.gov) The industry says private credit still fills a financing gap for midsize companies and offers investors higher yields than many public markets. Ares said in its 2026 outlook that private corporate credit has become a major source of capital for companies and a larger allocation for institutional and individual investors. (aresmgmt.com) Banks are already reacting at the margin. Reuters reported on March 31 that some U.S. banks have raised borrowing costs on loans to private-credit funds as concerns grow about how some investments are valued. (reuters.com) The immediate question is not whether private credit disappears, but how much of its risk sits inside banks and insurers once the market comes under pressure. The Fed’s questionnaires and Treasury’s April-May meetings are the clearest sign yet that Washington wants that map now, not after a blowup. (bloomberg.com) (reuters.com)