Fed probes private‑credit exposure

The Federal Reserve is asking major United States banks for details on their private-credit ties as withdrawals rise and troubled loans spread. (money.usnews.com) Reuters reported on April 10 that the Fed’s questions followed a surge in redemptions from private-credit funds and were aimed at measuring whether stress could spill into the broader financial system. The Fed declined to comment on the report. (money.usnews.com) Private credit is lending by nonbanks such as business development companies and other investment vehicles, often to midsize companies that do not borrow in public bond markets. A 2025 Federal Reserve Bank of Boston paper said banks have become a key source of liquidity to those lenders through credit lines, even when banks do not underwrite the loans themselves. (bostonfed.org) That link has drawn more attention because the market expanded from about $46 billion in 2000 to roughly $1 trillion in 2023 in the United States, according to the Boston Fed paper. Reuters and Treasury officials have recently described the broader nonbank private-credit sector at about $2 trillion. (bostonfed.org, money.usnews.com) The pressure point is liquidity: many private loans are hard to sell quickly, while some funds promise investors periodic withdrawals. The International Monetary Fund said in April 2024 that the sector faces risks from semiliquid fund structures, stale valuations, multiple layers of leverage, and limited data on who is exposed to whom. (imf.org) The International Monetary Fund also said competition and pressure to put money to work can weaken loan protections, including covenants, and raise the risk of future credit losses. The Federal Reserve’s own financial-stability framework focuses on vulnerabilities that can amplify shocks across the system. (imf.org, federalreserve.gov) Stress is already showing up in exchange-traded funds, which trade all day like stocks even when some underlying credit is far less liquid. CNBC reported on April 11 that private-credit exchange-traded funds can hold direct exposure only up to 35 percent, but investors can still sell fund shares at discounts to net asset value when fear rises. (cnbc.com) CNBC said the VanEck BDC Income ETF, with about $1.5 billion in assets, was down 13 percent since the start of 2026, while shares of Blue Owl Capital were down more than 46 percent this year. The Simplify VettaFi Private Credit Strategy ETF was down about 20 percent over the past year. (cnbc.com) Other regulators are moving too. The United States Treasury Department said on April 1 that it would meet with domestic and international insurance regulators starting this month to discuss private-credit markets and whether strains there could affect the wider credit market. (money.usnews.com) Fed Chair Jerome Powell said on March 30 that the central bank was watching private credit for signs of trouble but did not then see it bringing down the financial system as a whole. The Fed’s new information-gathering suggests officials want a sharper map of where the risks sit before that judgment is tested. (money.usnews.com, money.usnews.com)