Gould included these comments in a letter to Sen. Elizabeth Warren, who had asked the OCC and other banking regulators to investigate credit risks at banks with at least $50 billion in assets, paying particular attention to loans to private credit firms and other non-bank financial institutions, Bloomberg reported Friday (Jan. 23).
In his letter, Gould said of the OCC’s efforts, per the report: “This change will reduce burden, empower banks, and mitigate the demand that has underpinned the growth of private credit.”
PYMNTS reported in December that private credit now rivals traditional bank lending in size and influence. According to the Federal Reserve, private credit outstanding has roughly doubled over the past five years.
The PYMNTS Intelligence report “Embedded Lending Hits Friction as Mid-Market Firms Navigate Uncertainty” found that half of “stable” middle-market companies now view credit as growth capital rather than a last resort and that they are increasingly open to alternative financing, including embedded lending offered via technology or payments platforms.
While private credit is often described as lending outside the banking system, banks remain deeply connected to private credit, PYMNTS reported in December. Banks provide credit lines, financing facilities and risk transfer instruments that support fund managers’ ability to originate new loans.
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That indirect role means banks share exposure to borrower performance.
In a December letter to the banking regulators, Warren and Sen. Jack Reed called for those agencies to ensure the resilience of the banking system as “cracks emerge” in private credit markets and other credit markets.
“If a nonbank’s underlying loans sour, it may be unable to pay off its own debt,” they said in their letter. “Banks may then be stuck with the weak loans, which served as collateral. It is clear that any stress in the shadow banking sector will ultimately impact the banking sector.”
