CFO Slice

U.S. banking regulators told lawmakers they are closely monitoring the rapid growth of private credit and other nonbank financial institutions, warning that limited transparency makes it difficult to assess how bank funding is being used outside the traditional banking system. Testifying before the House Financial Services Committee on Thursday, Federal Reserve Vice Chair for Supervision Michelle Bowman said regulators recently launched new data collection efforts to better understand the flow of bank lending into private credit markets. While she stressed that private credit does not currently pose an immediate threat to financial stability, she described the sector as “very opaque” and said regulators need greater visibility into underwriting practices, collateral quality, and risk concentrations. Bank lending to nonbank financial institutions has grown rapidly since 2009, with private credit becoming an increasingly important source of financing as tighter post-financial-crisis banking regulations pushed some lending activity outside the traditional banking sector. Regulators noted concerns following several private credit-related bankruptcies and rising default rates among portfolio companies.