The Private Credit Market has emerged over the last year as a big potential risk to the U.S. banking system. What are the main risks from this newer segment of the lending market? This episode examines four main risks. 1) Banks could experience direct losses from loans secured by private credit funds, i.e. NDFI lending. 2) Banks could lose their largest loan segment. Lending to NDFIs has become big banks #1 lending category over the last few years. 3) Banks will no longer be able to pass bad deals onto the Private Credit Market, SRTs anyone! 4) A contagion of delinquency leads to a drop in values. NAVs drop, real estate values drop, company value drops, leading to defaults, leading to bad loans, which leads to loan losses. This chain goes from company to Private Credit Fund back to originating bank. This episode examines an article from Bank Director titled “The real risk of Private Credit to banks.” A link to the article is included below.<br><br>Link: The Real Risks of Private Credit to Banks | Bank Director

What types of risk does the Private Credit Market pose to banks?

The Banker Next Door

How's everyone doing? Welcome back to another episode of The Banker Next Door. I'm your host, Dr. Joseph Bergquist. So I've talked a lot on the channel about private credit, private credit, the private credit market, all the different facets of private credit, you know, NDFI lending, so on and so forth. But I came across an article about perhaps something that I haven't covered maybe directly as opposed to I think I've covered these things indirectly, but this takes a more direct charge at these things.

And that is, what are the primary risks to banks posed from the private credit market or perhaps lending to the private credit market or selling loans into the private credit market? So I found a great article from Bank Director. And basically, this article is titled The Real Risks of Private Credit to Banks. So shrapnel from a private credit bust will hit banks, but risks will be more indirect than direct.

So we're going to go through four basic items here. So it starts off the article by saying, Private credit has emerged from the shadows of finance to making headlines for all the wrong reasons. Spooked investors are withdrawing their capital from the leading private credit funds, which are responding by freezing redemptions. The Securities and Exchange Commission and Department of the Treasury are conducting investigations.

Practically every public bank needs at least one private credit slide in their investor deck. So what is the risk to banks if private credit devolves into a crisis? Here are four risks outlined in order of seriousness. Now, right before I go into this, I just want to point something out. There was actually some very big news about a week ago in the private credit space.

What types of risk does the Private Credit Market pose to banks?

Read the full transcript

The candid version is on a podcast,
not the earnings call.

What types of risk does the Private Credit Market pose to banks?

Read the full transcript

The candid version is on a podcast, not the earnings call.

The candid version is on a podcast,
not the earnings call.