Ratings agency Moody's in a report stated that U.S. banks' loans to private credit providers have surged to nearly $300 billion and warned that smaller lenders could face heightened risks if underwriting standards weaken. Loans to non-depository financial institutions (NDFIs) are now 10.4 per cent of total bank loans, nearly three times the 3.6 per cent exposure a decade ago, the report said. The aggressive growth outpaced all other lending activities since 2016, it added.
Investors have been concerned about wider strains in the financial sector after some regional banks, including Zions Bancorp, flagged bad loan and alleged fraud issues in recent weeks.
Besides exposure to private credit providers, there was a further $285 billion in loans to private equity funds as of June, and $340 billion in unutilized commitments available to these borrowers, Moody's said.
Analysts see the recent episodes as idiosyncratic events rather than a systemic concern in credit quality. Top banking executives have also downplayed the risk in private lending.
Meanwhile, the Federal Reserve has shown other U.S. regulators the outlines of a revised plan that would dramatically relax a Biden-era bank capital proposal for Wall Street's largest lenders, Reuters reported quoting Bloomberg News on Wednesday.
Some officials have calculated that the terms of the Fed's plan would lead to an increase of between about 3 per cent and 7 per cent in total capital for most big banks, the report said, citing people familiar with the matter.
That outcome is far below the 19 per cent raise that the industry had faced in 2023 under the draft Basel capital rules, which proposed changes to how big banks gauge lending and trading risks.
The Federal Reserve declined to comment on the report. Reuters could not independently verify the report.
Earlier this month, Reuters reported citing senior industry executives that as President Donald Trump's regulators revamp bank rules, big lenders expect their capital requirements could fall.
The "Basel III" standard was agreed after the 2007-09 global financial crisis. It includes numerous capital, leverage and liquidity requirements.
The proposal had sparked unprecedented pushback from Wall Street banks who argued it would tighten lending and ripple into other business lines. Banks have been lobbying hard with regulators to water down the draft rules.
Q1. What is Moody's?
A1. Moody's is a credit ratings agency.
Q2. What is Basel III?
A2. The "Basel III" standard was agreed after the 2007-09 global financial crisis. It includes numerous capital, leverage and liquidity requirements. The proposal had sparked unprecedented pushback from Wall Street banks who argued it would tighten lending and ripple into other business lines. Banks have been lobbying hard with regulators to water down the draft rules.
Investors have been concerned about wider strains in the financial sector after some regional banks, including Zions Bancorp, flagged bad loan and alleged fraud issues in recent weeks.
Besides exposure to private credit providers, there was a further $285 billion in loans to private equity funds as of June, and $340 billion in unutilized commitments available to these borrowers, Moody's said.
Analysts see the recent episodes as idiosyncratic events rather than a systemic concern in credit quality. Top banking executives have also downplayed the risk in private lending.
Meanwhile, the Federal Reserve has shown other U.S. regulators the outlines of a revised plan that would dramatically relax a Biden-era bank capital proposal for Wall Street's largest lenders, Reuters reported quoting Bloomberg News on Wednesday.
Some officials have calculated that the terms of the Fed's plan would lead to an increase of between about 3 per cent and 7 per cent in total capital for most big banks, the report said, citing people familiar with the matter.
That outcome is far below the 19 per cent raise that the industry had faced in 2023 under the draft Basel capital rules, which proposed changes to how big banks gauge lending and trading risks.
The Federal Reserve declined to comment on the report. Reuters could not independently verify the report.
Earlier this month, Reuters reported citing senior industry executives that as President Donald Trump's regulators revamp bank rules, big lenders expect their capital requirements could fall.
The "Basel III" standard was agreed after the 2007-09 global financial crisis. It includes numerous capital, leverage and liquidity requirements.
The proposal had sparked unprecedented pushback from Wall Street banks who argued it would tighten lending and ripple into other business lines. Banks have been lobbying hard with regulators to water down the draft rules.
FAQs
Q1. What is Moody's?
A1. Moody's is a credit ratings agency.
Q2. What is Basel III?
A2. The "Basel III" standard was agreed after the 2007-09 global financial crisis. It includes numerous capital, leverage and liquidity requirements. The proposal had sparked unprecedented pushback from Wall Street banks who argued it would tighten lending and ripple into other business lines. Banks have been lobbying hard with regulators to water down the draft rules.
