By Ismail Shakil
April 1 (Reuters) – The U.S. Treasury Department said on Wednesday it will meet with domestic and international insurance regulators to discuss recent developments in private credit markets, as concerns about the health of the $2 trillion non-bank lending sector impact the wider credit market.
The meetings, scheduled to begin this month and continue through early May, will allow participants to survey recent market events, emerging risks, risk management practices, and outlooks for the sector, the Treasury Department said in a statement.
“This first series of meetings will facilitate greater regular communication with the state insurance regulators, who serve as the insurance industry’s primary regulators, and lay the groundwork for sustained close collaboration,” the department added.
News of the planned Treasury meetings was first reported by Reuters on Sunday. Treasury officials are keen to hear regulators’ feedback on the rising use of fund-level leverage, the consistency of private credit ratings, the use of offshore reinsurance, and the liquidity of investments in private credit markets, Reuters reported, citing two sources familiar with the plans.
Concerns over liquidity, transparency and lending discipline have rattled investor sentiment in the private credit sector – lending to companies by non-banks, such as private equity funds and asset managers. Cases such as the bankruptcy of auto-parts supplier First Brands and car dealership Tricolor, where some private-credit lenders held exposure, have also contributed to a slump in investor sentiment.
Those jitters have coursed through the markets in recent weeks, with some major U.S. banks tightening lending, while private funds have capped withdrawals as redemption requests surged in recent months.
Those concerns have also prompted debate over whether problems in the private credit market are one-offs or will turn into a systemic issue.
Bank of England Governor Andrew Bailey warned on Wednesday against dismissing private credit failures as isolated incidents, saying the sector’s opacity could amplify shocks in a way reminiscent of the 2008 financial crisis.
In the U.S., St. Louis Federal Reserve President Alberto Musalem said financial conditions are still “broadly accommodative” and stress in private credit markets is largely limited to that sector and not a sign of broader woes.
(Reporting by Costas Pitas and Ismail Shakil; Editing by Ryan Patrick Jones, Christian Martinez and Deepa Babington)
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