Private Credit Crisis Spreads, U.S. Regulators Demand "Exposure Assessments" from Major Financial Institutions like Banks and Insurers

U.S. regulators are intensifying efforts to assess the risk pressure within the private credit sector and its potential ripple effects on the financial system.

On April 11, Bloomberg reported, citing people familiar with the matter, that the Federal Reserve has integrated private credit-related issues into the daily supervisory processes for major banks, with a focus on assessing the debt financing exposure that banks provide to private credit funds.

As previously reported by Wallstreetcn.com, the U.S. Treasury Department is also conducting an independent investigation into the private credit exposure held by insurance companies.

Last week, the U.S. Treasury announced plans to hold a series of meetings with state-level insurance regulators to discuss "recent market dynamics, emerging risks, risk management practices," and the outlook for the private credit market.

Recently, the U.S. private credit sector has seen a surge in redemptions and a rise in non-performing loan ratios. The private credit market has expanded continuously in recent years, with its investor base broadening from institutional investors to individual investors. Its deep entanglement with the traditional banking system has heightened the vigilance of regulatory authorities.

Bank Exposure a Core Concern for the Fed

According to reports citing individuals familiar with the matter, the Federal Reserve has incorporated these inquiries into its regular supervisory procedures, focusing on the situation of debt financing obtained by private credit funds from banks.

Credit funds rely on banks for custodial services and credit lines, indicating a deep interdependency. In favorable market conditions, such leveraged arrangements can amplify the returns for private credit funds and enhance their appeal to investors. However, when the market comes under pressure, it can expose banks to losses on their collateral.

Public data shows that as of the end of 2025, Blackstone's private credit funds had a debt-to-equity ratio of 0.7x; Blue Owl Credit Income had a ratio of 0.8x as of February 28, and KKR FS Income Trust was around 0.7x at the end of February.

In his latest annual letter to shareholders, JPMorgan Chase CEO Jamie Dimon warned about the lack of transparency and low valuation standards in the private credit industry, but he also stated that he does not believe private credit poses systemic risk.

U.S. Treasury Simultaneously Investigates Insurance Sector Exposure

The U.S. Treasury Department had previously formed a special team to inquire about private credit assets held by insurance companies.

In an April statement, the U.S. Treasury indicated its intention to meet with state regulatory bodies that directly oversee insurance companies to discuss emerging industry risks and future prospects, and to engage with international regulatory bodies on related topics.

According to reports, this review is expected to last several months, and some financial institutions may hold separate meetings with the Treasury.

Over the past decade, insurance companies have significantly channeled funds to non-bank lenders, deeply participating in the expansion of the private credit market.

Private credit institutions have utilized these funds to lend to corporations and have placed assets within complex investment structures, thereby forming a chain of interdependencies and risks with insurance companies.

Growing International Regulatory Warnings

The regulatory scrutiny of the private credit sector is not an isolated phenomenon.

Andrew Bailey, Chair of the Financial Stability Board (FSB), stated this week that following geopolitical shocks in the Middle East, the pressure on private credit may further intensify.

The U.S. Financial Stability Oversight Council (FSOC) also indicated at the end of March that it had conducted a special discussion on recent developments in the private credit space.

Notably, this round of regulatory inquiry occurs against the backdrop of the Trump administration's push for financial deregulation.

The Trump administration is seeking to relax lending rules for large Wall Street banks, with some policy intentions aimed at expanding banks' lending capacity to private credit institutions and enhancing the competitiveness of traditional banks against non-bank entities in areas such as mortgage and small business loans.

This seemingly contradictory combination—loosening rules while intensifying information gathering—is interpreted by analysts as regulatory authorities attempting to retain active awareness of systemic risks while pursuing deregulation.

The private credit industry has long been within the scope of regulatory observation, and with credit funds targeting retail investors recently experiencing redemption pressures, the attention from regulatory bodies has clearly increased.