The rapid rise of private credit may pose unforeseen threats to the U.S. banking system, according to two senior Democratic senators, Bloomberg News reported. Sherrod Brown, who chairs the Banking Committee, and Jack Reed, who also sits on the panel, yesterday asked U.S. regulators to do more to assess the potential dangers. The lawmakers also requested details on what the Federal Reserve, Federal Deposit Insurance Corp. and the Office of Comptroller of the Currency were doing to address the issue. “Unlike the traditional banking industry, the private credit market is subject to minimal, indirect regulatory oversight,” the senators wrote in a letter to the Fed’s Michael Barr, FDIC Chairman Martin Gruenberg and Acting Comptroller Michael Hsu. “The lack of transparency in this market obscures its true size and risk.” The senators emphasized risks posed by the growing ties between the traditional banking market and private funds. They warned that it could “pose hidden dangers to the banking system, especially as most of the private credit market has not endured a full economic cycle with elevated default rates.”
