Federal Reserve Requests Information on U.S. Banks’ Exposure to Private Credit Firms

(SeaPRwire) –   The Federal Reserve is requesting detailed information from major U.S. banks regarding their involvement with private credit, following a recent surge in fund withdrawals and an increase in problematic loans within the industry, according to informed sources.

These inquiries by Fed examiners are designed to evaluate the extent of stress in the private credit sector and its potential to impact the broader financial system, said the sources, who requested anonymity to discuss the ongoing work.

Among the questions the Fed has integrated into its standard oversight process, the central bank has been seeking specifics on the debt private credit funds have obtained from banks. During favorable economic conditions, such debt can enhance returns and make private credit funds more appealing. However, in challenging times, it risks exposing banks to losses.

Separately, the Treasury Department is also questioning the insurance industry about its exposures to private credit, according to individuals familiar with those discussions.

Representatives for both the Fed and Treasury offered no immediate comment.

These questions represent one of the clearest indications yet that U.S. regulators are actively working to understand the full scope of pressures in private credit, an industry that has expanded significantly to $1.8 trillion, initially marketed to institutional investors and now increasingly to individuals.

Private credit, which relies on investor capital—rather than bank deposits—to issue loans, has been on examiners’ radar for years. Their focus intensified in recent months when retail credit funds experienced difficulties and investors rapidly withdrew cash.

Regulatory Push

A growing number of international regulators have been issuing warnings about the risks associated with private credit. Financial Stability Board Chair Andrew Bailey stated this week that private credit might be facing increased stress after market disruptions stemming from the Iran war. The Financial Stability Oversight Council reported in late March that it had discussed recent developments in the private credit sector.

The Fed’s questioning occurs as President Donald Trump’s leading financial watchdogs aim to ease regulations for major Wall Street lending institutions. Part of this deregulation effort is intended to both bolster banks’ capacity to lend to private-credit firms and enable traditional lenders to better compete with nonbank entities in areas such as mortgage and small-business loans.

The move also suggests that officials, including Fed Vice Chair for Supervision Michelle Bowman, seek to balance relaxed rules with more strategic inquiries to the industry about what they perceive as potential areas of risk, some sources indicated.

Banks have sought to distinguish themselves from their less regulated nonbank competitors. In his latest CEO letter, JPMorgan Chase & Co.’s Jamie Dimon warned about the private credit industry’s lack of transparency and poor valuation standards, though he did not believe private credit posed a systemic risk.

Wall Street and their private credit counterparts are deeply interconnected. Credit funds depend on banks to safeguard and custody assets. They also require banks for lines of credit. If private credit portfolios deteriorate, this jeopardizes the collateral against which banks are lending.

The Blackstone Private Credit Fund reported a debt-to-equity ratio of 0.7 times at the end of 2025, while Blue Owl Credit Income Corp.’s was 0.8 times as of February 28. KKR FS Income Trust’s ratio was approximately 0.7 times at the end of February.

Insurance Firms

The Fed’s questioning complements another initiative by the Treasury Department to question insurers about their exposure. The regulator has assembled a team to manage this, according to individuals familiar with the matter.

The Treasury plans to meet with state regulators, who directly oversee insurers in the U.S., to discuss emerging risks and outlooks for the sector, the agency stated in an April announcement. The Treasury also expects to discuss it with international regulators, it added.

The review is anticipated to continue over the coming months, and some financial firms may hold their own meetings with the Treasury, sources said.

Over the last decade, insurance companies have significantly contributed to the growth of nonbank lenders, granting them greater influence over substantial pools of cash. Private credit players have utilized these funds to provide loans to businesses and invest them in complex investment structures.