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Private Credit Moves In on Traditional Loan Channels, and Regulators Are Watching

March 22, 2024 | 1 minutes reading time | By John Hintze

The segment remains small relative to total debt and the economy, but the risks of contagion and banking instability cannot be ruled out.

Leading the charge into what has become known as private credit, private equity (PE) firms are “originating loans at scale and holding on to them – an activity traditionally done by banks.” One of the biggest, Apollo Global Management, “is now operating 16 loan origination platforms, ranging from middle market lending to equipment finance to trade finance.”

So observed U.S. national bank regulator Michael Hsu in a February speech at Vanderbilt University. Because such activities push against, or blur the lines of, regulatory boundaries, the acting Comptroller of the Currency suggested that they raise supervisory and macroprudential issues and deserve scrutiny from the Financial Stability Oversight Council (FSOC) and other bodies concerned about potential systemic vulnerabilities.

Hsu further discussed the evolving structures and time horizons of closed-end PE funds, which, while responding to changing dynamics in the credit marketplace, “can introduce new risks, including redemption risks similar to those faced by open-end bond funds, which have been cited as a financial stability concern by the FSOC” and the Securities and...

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Topics: Counterparty

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