WASHINGTON—The Federal Reserve is asking major U.S. banks for details on their exposure to private credit as regulators take a closer look at whether mounting strain in the fast-growing sector could spill into the broader financial system, Reuters reported, citing a Bloomberg News report Friday.
Reuters said Bloomberg, citing people familiar with the matter, reported the Fed is seeking to gauge stress in private credit after a surge in fund redemptions and a rise in troubled loans.
Reuters said it could not immediately independently verify the Bloomberg report, and that the Federal Reserve declined to comment. But the reported inquiry comes as private credit firms face growing pressure following the recent market downturn, with investors pulling back amid concerns over valuations, underwriting standards and the fallout from several high-profile bankruptcies, Reuters reported.
Reuters noted some large U.S. banks have already tightened lending standards, while private credit funds have in recent months moved to cap withdrawals as redemption requests climbed. The developments have fueled concerns that problems in the roughly $2-trillion non-bank lending market could begin to affect traditional financial institutions and broader credit availability, Reuters said.
The report also comes just days after the Treasury Department said it would meet this month with domestic and international insurance regulators to discuss private credit markets, according to Reuters, underscoring how closely Washington is now watching whether stress in the sector could ripple beyond alternative lenders and into the wider financial system.