Key Takeaways
- • European supervisors seeking clearer visibility into banks' exposure to private credit are meeting resistance from the U.S. Treasury, according to Reuters sources, highlighting a widening transatlantic divide over financial regulation.
- • The global private-credit industry is estimated at around $2 trillion, with much of it concentrated in the United States, and European authorities cite limited disclosure, opaque valuations and complex funding structures as key concerns.
- • U.S. Treasury officials reportedly argue that the requested information is confidential and that broader disclosure would impose unnecessary burdens on firms.
- • ECB analysis puts euro zone banks' private-credit exposure at an estimated €62.5 billion ($71.46 billion), or 0.2% of assets, while an ECB severe-shock model found the biggest damage would come from broader market selloffs rather than direct loan losses.
- • Discussions have taken place within the Financial Stability Board, where an FSB spokesperson said patchy data and differing definitions make private-credit risks hard to compare across countries.
Summary
European financial supervisors seeking a clearer picture of banks' exposure to private credit markets are running into resistance from the U.S. Treasury, highlighting a widening transatlantic divide over financial regulation, officials say, according to Reuters. European authorities are increasingly concerned about the global private-credit industry, estimated at around $2 trillion and largely concentrated in the United States, citing limited disclosure, opaque valuations and complex funding structures. Concern has grown amid recent market strains, including redemption restrictions at some funds and a series of high-profile corporate defaults.
European regulators have been pressing for information on the underlying assets held by the institutions they oversee, including details on borrowers, valuation methods and guarantees backing investments. U.S. Treasury officials have resisted broader data sharing, arguing that the information is confidential and that additional disclosure requirements would impose unnecessary burdens on firms, several sources said. Bundesbank board member Michael Theurer told Reuters that supervisors face resistance, citing legal restrictions on sharing and the criticism that the reporting requirements represent a new bureaucratic burden. The discussions have taken place in international forums including the Financial Stability Board, though officials declined to be named because FSB deliberations are confidential. An FSB spokesperson said patchy data and differing definitions make private-credit risks hard to compare across countries. The SEC, which represents the U.S. on the FSB alongside the Fed and Treasury, said it participates in such forums but takes confidentiality and legal restrictions seriously. The Federal Reserve and Treasury declined comment.
European supervisors say they lack sufficient look-through into private-credit vehicles to understand where risks ultimately reside. ECB analysis suggests aggregate direct exposures are modest: euro zone banks have an estimated €62.5 billion ($71.46 billion) of exposure to private credit globally, equivalent to 0.2% of assets, while insurers and pension funds hold roughly €211 billion and €52 billion respectively. Those exposures are concentrated in a small number of large institutions, particularly in Germany, France and the Netherlands. Officials argue that such aggregate assessments are no longer sufficient, as private-credit assets are repackaged and redistributed through collateralised loan obligations, leveraged lending and asset-intensive reinsurance, making underlying risks opaque. An ECB severe-shock model found direct losses would be manageable, but that the biggest damage would stem from broader market selloffs and valuation losses spreading through the financial system, reinforcing concerns that aggregate data may understate risk.
In the U.S., Fed Vice Chair for Supervision Michelle Bowman said in May that default and loss rates at non-banks would need to be "abnormally high" to put banks at risk and that bank loans to private credit firms appeared well collateralised. She said the Fed was making bank reporting requirements more granular regarding lending to non-banks to better assess concentration risks.
European regulators have been pressing for information on the underlying assets held by the institutions they oversee, including details on borrowers, valuation methods and guarantees backing investments. U.S. Treasury officials have resisted broader data sharing, arguing that the information is confidential and that additional disclosure requirements would impose unnecessary burdens on firms, several sources said. Bundesbank board member Michael Theurer told Reuters that supervisors face resistance, citing legal restrictions on sharing and the criticism that the reporting requirements represent a new bureaucratic burden. The discussions have taken place in international forums including the Financial Stability Board, though officials declined to be named because FSB deliberations are confidential. An FSB spokesperson said patchy data and differing definitions make private-credit risks hard to compare across countries. The SEC, which represents the U.S. on the FSB alongside the Fed and Treasury, said it participates in such forums but takes confidentiality and legal restrictions seriously. The Federal Reserve and Treasury declined comment.
European supervisors say they lack sufficient look-through into private-credit vehicles to understand where risks ultimately reside. ECB analysis suggests aggregate direct exposures are modest: euro zone banks have an estimated €62.5 billion ($71.46 billion) of exposure to private credit globally, equivalent to 0.2% of assets, while insurers and pension funds hold roughly €211 billion and €52 billion respectively. Those exposures are concentrated in a small number of large institutions, particularly in Germany, France and the Netherlands. Officials argue that such aggregate assessments are no longer sufficient, as private-credit assets are repackaged and redistributed through collateralised loan obligations, leveraged lending and asset-intensive reinsurance, making underlying risks opaque. An ECB severe-shock model found direct losses would be manageable, but that the biggest damage would stem from broader market selloffs and valuation losses spreading through the financial system, reinforcing concerns that aggregate data may understate risk.
In the U.S., Fed Vice Chair for Supervision Michelle Bowman said in May that default and loss rates at non-banks would need to be "abnormally high" to put banks at risk and that bank loans to private credit firms appeared well collateralised. She said the Fed was making bank reporting requirements more granular regarding lending to non-banks to better assess concentration risks.
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