The US Federal Reserve has asked major banks in the country to detail their exposure to private credit, according to a report from Bloomberg.
The inquiries aim to assess the level of stress in the industry and its potential to spill over into the rest of the financial system, people with knowledge of the matter told the outlet.
Earlier in April, the US Treasury met insurance regulators to discuss their own exposure to the market, to “allow participants to survey recent market events, emerging risks, risk management practices and outlooks for the sector”, according to the department.
The news comes soon after the Financial Times reported that investors sought to remove more than $20 billion from private credit funds in the first quarter of the year.
Some funds, including Morgan Stanley’s North Haven, limited withdrawals earlier in the year after attempted repurchases broke the 7 per cent maximum set by the Securities and Exchange Commission.
Private credit can offer higher returns than bank-backed investment and allow companies that would not normally get loans to expand their operations without risking institutionally backed funds. The market has now reached over $1.7 trillion, with far less oversight than traditional lending.
Following the collapse of aftermarket car parts manufacturer First Brands Group last year, the investments made by private funds have come under greater scrutiny.
JPMorgan chief executive Jamie Dimon has been particularly outspoken about market risks, saying in his annual letter to shareholders on 6 April that weakening lending standards in private credit will lead to higher losses than many expect.