Fed seeks details on U.S. banks’ exposure to private credit firms

The Federal Reserve is asking major US banks for details about their exposure to private credit following a surge in redemptions from the funds and a rise in troubled loans in the industry, according to people with knowledge of the matter.

The queries by Fed examiners are intended to assess the level of stress in the private credit industry and the potential for it to spill over to the wider financial system, said the people, requesting anonymity to discuss the work. 

Among the queries the Fed has been incorporating into its routine oversight process, the central bank has been seeking detail on the debt private credit funds have taken on from banks. In good times, that debt can juice returns and make private credit funds more enticing. In bad times, it risks exposing banks to losses.

The Treasury Department is also questioning the insurance industry about exposures to private credit, said people with knowledge of those separate discussions.

Representatives for the Fed and Treasury had no immediate comment.

The questions are one of the strongest signals yet that US regulators are working to get a handle on the scale of the strains in private credit, which has ballooned to an $1.8 trillion industry marketed first to institutional investors and increasingly now to ind...