New York Fed reviews major banks' private credit exposure

The Federal Reserve Bank of New York has been reviewing major banks' exposure to private credit firms since the spring. Regulators have met with institutions including JPMorgan Chase, Wells Fargo, Barclays, and Morgan Stanley to examine risk management, exposure levels, and the quality of collateral.

This supervisory attention follows concerns regarding loan markdowns, specifically involving software loans perceived as vulnerable to AI-driven disruption. Bank lending to nonbank institutions has grown significantly from approximately $300 billion in 2016 to over $1.5 trillion, now representing about 11% of all bank loans.

The review highlights growing regulatory scrutiny over how these loans are valued and the potential risks posed by the rapid expansion of the shadow banking sector. Increased oversight could lead to more cautious lending practices, potentially tightening funding for nonbank lenders and increasing borrowing costs for mid-sized companies.