New York Fed examines private credit loans at JPMorgan, Wells Fargo, Barclays, Morgan Stanley
Examiners have been visiting the four banks since spring, asking about exposure, risk management and collateral quality.
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The Federal Reserve Bank of New York has been visiting JPMorgan, Wells Fargo, Barclays and Morgan Stanley since the spring, questioning the banks about their lending to private credit firms, Semafor reported. Examiners are looking at overall exposure, risk management and the quality of collateral backing the loans.
The review was prompted in part by JPMorgan's decision in March to mark down large portions of its private credit loan book, particularly loans to software companies facing competition from AI, Semafor reported, citing people familiar with the matter. The Fed has already concluded its review of some of the banks, including JPMorgan, according to Semafor. JPMorgan, Wells Fargo, Barclays, Morgan Stanley and the Fed all declined to comment.
The scrutiny builds on earlier steps. The Fed had already asked major banks for details on their private credit exposure in April, after a surge of redemptions from private credit funds and a rise in troubled loans in the industry, Bloomberg reported. In August, the Federal Reserve Banks of Dallas and New York launched a pilot survey of the direct lending market, which they estimated at more than $1.3 trillion, the Dallas Fed said. Fed Governor Michelle Bowman has said the central bank needs more information on bank exposure to private credit because the activity is "very opaque," she told Banking Dive.
The size of that exposure varies by bank. Wells Fargo's lending to private credit firms stood at roughly $36.2 billion as of the first quarter, JPMorgan's at $50 billion and Morgan Stanley's direct lender financing at $20.1 billion as of the fourth quarter, Bloomberg reported. A broader measure of Wells Fargo's lending to non-bank financial firms, which includes private credit, totaled $210.2 billion in its first-quarter filings, or 21% of its total loans, the largest share among big banks, according to a Forbes analysis. JPMorgan's regulatory filings show about $330 billion in exposure to non-bank financial institutions, though the bank's own measure, after excluding items such as non-purpose margin loans, is closer to $160 billion, the analysis found.