The Federal Reserve plans to implement new reporting rules for banks issuing private credit loans

Gold Financial reports that on May 9th, Federal Reserve Vice Chairman for Supervision, Michael Barr, stated that the Federal Reserve will introduce new regulatory reporting requirements to increase transparency for banks lending to private credit and other so-called “non-deposit financial institutions” (NDFIs). According to Barr’s speech planned for Friday at Stanford University’s Hoover Institution Annual Monetary Policy Conference, he said: “This update requires large banks to report relevant financial information of non-deposit financial institutions they provide credit to, including total assets, net profit, and leverage ratios, in order to analyze credit underwriting and conduct ongoing risk assessments.”
Barr pointed out that current data reporting relies on industry classification codes, which are too broad to effectively measure specific risk exposures. “The lack of granularity makes it very difficult to assess concentration risk, measure interconnectedness, or calibrate capital requirements based on actual risk.” Barr believes that the regulatory reforms implemented after the 2008 financial crisis had an unintended consequence, pushing lending activities from the banking sector toward non-deposit financial institutions. “Ironically, the treatment banks receive for lending to private credit funds is more favorable than directly lending to creditworthy companies,” Barr said. “This treatment encourages banks to provide funding to intermediaries rather than directly serving the end borrowers.” He mentioned that bank loans to non-deposit financial institutions have grown significantly, but “overall, there appears to be sufficient collateral support.” (East New Agency)