Shadow banking is basically the 2008 subprime sequel but with different branding. the sec poking around now means the smoke is finally getting too thick to ignore. Private credit firms have been marking their own homework for years with these valuations, and we all know how that ends.
Wall Street’s watchdogs are ramping up their inquiries into how much risk has built up in the $3 trillion private-credit industry, just as investor angst has sparked some backers to head to the exits.
The Securities and Exchange Commission in recent months has opened several enforcement investigations of large private-credit managers, according to people familiar with the matter. The Treasury Department has requested information from private fund managers and insurance firms about their business models. Bank regulators, too, have stepped up their focus on the risks posed by the industry, with the Federal Reserve querying banks about their lending and exposure to private credit.
Regulators have been watching for risks stemming from the growing private-credit market for years, but the recent outreach adds to scrutiny amid a wave of withdrawals, slowing inflows and dropping stocks, people familiar with the latest actions said. The agencies have been acting separately but discussed the turbulence during a recent meeting of the Financial Stability Oversight Council, they said.
None of the regulators are sounding dire alarms yet, and Trump administration officials have said publicly they don’t think losses in private-credit funds would ripple painfully through the financial system, echoing what executives and bankers have said too.
h/t Savard-Lafleur