The Federal Reserve has reached out to major U.S. banks requesting details about their connections to private credit firms, following a recent upswing in redemption requests from private funds and a noted increase in troubled loans within the industry, people familiar with the matter told Bloomberg, according to the report.
The central bank is attempting to evaluate how much strain exists inside the private credit market and whether any deterioration has the potential to transmit to the broader financial system, the report said. Reuters could not immediately verify the Bloomberg report. The Fed declined to comment.
Private credit firms have come under pressure in recent weeks as the market cooled. Some investors have pulled back from these vehicles, citing concerns about how assets are being valued and whether lending standards have loosened after several high-profile bankruptcies. These developments have contributed to a spike in redemption requests for certain private funds.
In reaction to the changing environment, a number of large U.S. banks have tightened their own lending standards. At the same time, some private credit funds have implemented caps on withdrawals to manage the surge in investor redemptions that has occurred in recent months.
The Fed's inquiry arrives shortly after the U.S. Treasury Department said it plans to meet with domestic and international insurance regulators this month to discuss developments in private credit markets as concerns grow about how the roughly $2 trillion non-bank lending sector could influence broader credit markets.
Federal Reserve Chair Jerome Powell noted last month that the central bank is monitoring developments in the private credit sector for signs of trouble, while not currently seeing those issues spilling over into the financial system at large. St. Louis Federal Reserve President Alberto Musalem added last month that financial conditions remain "broadly accommodative" and that, to date, stress tied to private credit markets appears largely confined to that sector.
Details about the Fed's bank outreach, the extent of individual banks' exposures, and the outcomes of the planned Treasury-insurance regulator discussions were not provided in the report. The level of transparency around exposures and the evolving responses from banks and funds will be important to watch as regulators assess potential systemwide risks.