"Banks have engaged in lending to private credit funds, are partnering with funds to actively arrange private credit deals, and have begun transferring risk to private credit funds through exotic financial instruments."
Wut Mean?:
- Today, U.S. Senators Sherrod Brown (D-OH), Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, and Jack Reed (D-RI), a senior member of the Banking and Housing Committee, urged financial regulators to assess the potential risks posed by the growing private credit market.
- In a letter to Federal Reserve Vice Chair for Supervision Michael Barr, Federal Deposit Insurance Corporation Chair Martin Gruenberg, and Acting Comptroller Michael Hsu, the Senators urged them to assess the risks that private credit may pose to the safety and soundness of the banking system.
- "We write to express concern over the rapid growth of the private credit market."
- "The sector has experienced astonishing growth, with assets more than tripling since 2015 to $1.6 trillion today."
- "Within the next five years, it is projected that the market could grow as large as $3.5 trillion."
- "At the same time, private credit funds operate in the shadows, and we are concerned that risk may be accumulating in the absence of sufficient oversight and accountability."
- "Unlike the traditional banking industry, the private credit market is subject to minimal, indirect regulatory oversight."
- "The lack of transparency in this market obscures its true size and risk."
- "Troublingly, there is insufficient insight into the private credit market’s key features, including loan terms, lenders’ funding structures, and borrowers’ financial health."
- "Private credit has developed significant interconnections with the banking system."
- "Banks have engaged in lending to private credit funds, are partnering with funds to actively arrange private credit deals, and have begun transferring risk to private credit funds through exotic financial instruments."
- "Given the sector’s expectations of rapid growth, these risks are already increasing as private credit fund managers continue to collect cash and deploy it on riskier deals."
- "It is imperative that bank regulators thoroughly assess all types of risks to our financial system, including risks posed by the private credit industry. In light of these concerns, we urge you to use the full extent of your regulatory authority to assess the potential risks that private credit may pose to the safety and soundness of our banking system."
- "we request that you each describe the steps your agency is taking to monitor risks in the private credit sector by December 20, 2023."
"It is imperative that bank regulators thoroughly assess all types of risks to our financial system, including risks posed by the private credit industry. In light of these concerns, we urge you to use the full extent of your regulatory authority to assess the potential risks that private credit may pose to the safety and soundness of our banking system."
TLDRS:
- U.S. Senators Sherrod Brown and Jack Reed expressed concern over the rapid growth of the private credit market, which has expanded from $1.6 trillion to a projected $3.5 trillion in the next five years, urging financial regulators to assess its potential risks to the banking system.
- The Senators highlighted that private credit funds operate with minimal oversight and transparency, leading to uncertainties about their size, risk level, loan terms, lenders' funding structures, and borrowers' financial health.
- They noted that private credit has become significantly interconnected with the traditional banking system, with banks engaging in lending to private credit funds, arranging private credit deals, and transferring risk through complex financial instruments.
- The Senators expressed worry that private credit fund managers are increasingly investing in riskier deals as the sector grows, posing potential threats to the financial system's stability.
- They are urging regulators to use their full authority to thoroughly assess risks posed by the private credit industry to ensure the safety and soundness of the banking system.
- They have requested that regulators describe the steps their agencies are taking to monitor risks in the private credit sector by December 20, 2023, to address these growing concerns.
- I wonder how many of these 'exotic financial instruments' have been used against GME?
