NY Fed Reviews Bank Loans to Private Credit Firms at JPMorgan, Wells Fargo, Barclays, Morgan Stanley — SEC Issues Rare Fair-Value Statement
Regulatory scrutiny of the bank–private credit nexus has moved from conceptual warnings to on-site supervisory work at specific institutions.
The NY Fed review (Semafor exclusive, Oct 5): "Fed officials have gone into JPMorgan, Wells Fargo, Barclays, and Morgan Stanley since the spring with questions about overall exposure, risk-management, and collateral quality, people familiar with the matter said." The review "was prompted in part by JPMorgan's move in March to mark down large swaths of loans in private credit portfolios, particularly those to software companies threatened by AI" — and the Fed "has concluded its review of some of the banks, including JPM."
The scale of the exposure being reviewed: "Loans to nonbank institutions have risen from $300 billion in 2016 to more than $1.5 trillion according to FDIC data, and now account for 11% of all bank loans outstanding." Those loans are "backed by private-credit firms' own loans, a debt pile that has unnerved regulators." (For the counterparty-mapping antecedent, see OFR Quantifies Bank and Insurer Exposure to Private Credit via Form PF Mapping.)
The surrounding regulatory perimeter, all within the past two weeks:
- SEC: "Last week, the Securities and Exchange Commission released a rare statement about fair value in private assets, serving as a reminder to lenders that they should be rigorous in their valuations and disclosures" (Hohl-Daley statement, late September).
- Bank of England: the September FPC record said private credit "could be vulnerable to worsening financial conditions" after its private-markets stress test (results unpublished — see the open PM SWES watch).
- ECB: expanded its June probe of banks' private credit exposures.
- Australia: after Metrics Credit Partners froze redemptions in funds where KPMG declined to sign off on accounts (marks down as much as 12.16%, no borrower default behind the gate), Reuters reports "Australia's corporate regulator said it was closely monitoring the sector after previously warning about valuation, liquidity, governance and transparency practices."
What it means: The supervisory perimeter is closing around the interconnection — banks lending $1.5T+ to the lenders — rather than the funds themselves, which is where the leverage actually sits (see The $322 Billion Hidden Leverage Chain: FSB and ECB Warn of Bank and Insurer Interconnections in Private Credit and European Banks Offload €438 Billion in Corporate Loan Risk via SRTs — Regulators Sound Alarms). The NY Fed's review concluding without public findings means the market won't see what examiners saw; the JPMorgan March markdowns remain the only hard public datapoint on bank-side marks. The SEC's fair-value statement, timed amid the Metrics/KPMG dispute and the MSCI markdown data (see MSCI Data Reveals 10% of Private Credit Loans Marked Down by Half as Borrower Stress Rises), signals that valuation disclosure is the enforcement front the Commission has chosen. Strategists should treat auditor sign-offs and pricing-service dependencies as the new diligence gates — the Metrics gate shows a valuation dispute can freeze redemptions even without any borrower default.