Discussion

US banks’ exposure to private credit hits $300bn

neogodless: Alternate post (from same poster)https://news.ycombinator.com/item?id=47349806 US private credit defaults hit record 9.2% in 2025, Fitch says (marketscreener.com)75+ comments

JumpCrisscross: Yeah, I'm going down a bit of a rabbit hole this morning. Turns out Wells Fargo's $59.7bn of private-credit lending is equal to 44% of its CE Tier 1 capital [1]. Meanwhile, Deutsche Bank got back to being Deutsche Bank while I was not looking [2].[1] https://www.sec.gov/Archives/edgar/data/72971/00000729712500...[2] https://www.reuters.com/business/finance/deutsche-bank-highl...

cs702: tick-tock, tick-tock, tick-tock...

kelp6063: Unless I'm misunderstanding something, this isn't that big of a number in the larger scale of US banking; According to the numbers in the article that's only about 2.5% of all bank lending (300B/1.2T, with the 1.2T being ~10%)

rchaud: Washington Mutual had $307 billion in assets, and one credit downgrade and a bank run of $16 billion in September 2008 was enough to get them shut down.These private credit numbers are estimates provided by Moody's, who were famously clueless about the scale of mortgage bond risk even as they stamped them all with a AAA rating.

gzread: To private credit firms. Most of what banks do is private credit, the news is them funding private credit firms.

ajross: That's not correctly stated. "Private Credit" is defined as non-bank lending. Banks are doing "public" lending in the sense of being regulated. Private lending is any sort of financial instrument issued outside of those guard rails.It's generally felt to be risky and volatile, but useful. Basically, it's never illegal just to hand your friend $20 even if the government isn't watching over the process to make sure you don't get scammed. This is the same thing at scale.

JumpCrisscross: > That's not correctly statedIt is. Banks have loaned $300bn mostly to private-credit firms. Those firms then compete with the banks to do non-bank lending. It's a weird rabbit hole and I'm grumpy after a cancelled flight, but it feels like I'm in the middle of a Matt Levine writeup.

plagiarist: Government removes regulations, economy collapses, government bails out the wealthy, quants get ski trips and bonuses while families starve.

NickC25: And to make matters worse, those who remove regulations then get voted out, but show up on infotainment "opinion" shows disguised as news broadcasts....and whine that those who were voted in to fix the mess aren't fixing the problem fast enough, so those who caused the problem should be voted back in. And lo and behold, they get voted back in, to cause more damage.

voidfunc: Its a big beautiful system!

sciencesama: Democracy

Tesl: One guy has twice as much money as that. Can't be a big deal.

RobRivera: What kind of trouble is brewing from the migration of partner capital committment to credit based on NAV?What is the risk, probability of actualizing the risk, and the outcome of actualized risk?The ticktock ticktock routine reads like baseless fearmongering to me.

cs702: My understanding is that many private credit funds have been very lax about conducting basic due diligence on the creditworthiness of borrowers.For example, consider First Brands, which filed for bankruptcy last year. First Brands had pledged the same collateral to loans from multiple private-credit funds. Those loans were being carried at an NAV of 100 cents per dollar until suddenly they were not.For many private credit funds, NAVs are basically fantasy.

rvz: Looks like we have another problem in the banking system once again, even before AGI has even been fully realized.Let's see how creative the banks will get to attempt to escape this conundrum. But until then...Probably nothing.

NickC25: >Let's see how creative the banks will get to attempt to escape this conundrum.They don't need to get creative, they just need to buy congress or the administration. Same as they've done every time things get messy.And you know what? It works every time.

RobRivera: Deutsche gonna Deutsche.Recruitment tables should just have a banner that reads 'we've already spent your bonus on legal fees, here's some chocolate'

JumpCrisscross: I'm re-running some of the Fed's stress tests and, somehow, still find myself flabbergasted that DB is at the top of my risk list. Despite only having $12bn of exposure, if they see a 60% loss on that risk alone (assuming 60% recovery and 1.5x leverage), they breach their 4.5% capital requirement. That's the lowest threshold I'm finding across all of the banks the Fed stress tests.Now 50% loss means wipe out. But given the size of the portfolio, there is also the concentration risk. A single private-credit firm going bust shouldn't take out a bank. But that seems–seems!–to be what I'm seeing.

wizardforhire: As long as nobody knows then it isn’t risk… /s

derektank: It’s more accurate to say that the private credit market was created by the government adding new regulations, not removing them. Business development corporations have existed since the 80s but they didn’t explode in popularity as business loan originators until Dodd Frank and other post-2008 regulations made it more difficult for banks to lend money. This led to small and medium size businesses to seek out credit from firms like Ares et al instead.

lumost: With the current concentration of wealth and banking, it almost seems like there is an incentive for banks to ruin themselves when they end up in a little trouble.If the bank has trouble, shareholders/executives lose - if the banking system has trouble... then QE will solve the bank trouble.

JumpCrisscross: > If the bank has trouble, shareholders/executives lose - if the banking system has trouble... then QE will solve the bank troubleIt's a game of chicken, though. The folks at Lehman and SVB didn't cash out. JPMorgan did. (Both times. Actually, all of the times since 1907.)

ajross: Good grief. I was responding to "Most of what banks do is private credit", which is wrong. Bank lending is not private credit.

JumpCrisscross: Oh, gotcha.

boringg: 25% not 2.5%. 300 B / 1.2 T = 25%. Unless your numbers above are different. Here correcting math thats all.

bagacrap: That's only loans to non bank financial institutions.Total bank balance sheets are about $25T.

ploden: > the top five lenders in the private credit market include Wells Fargo, which leads the way with $59.7bn (£44.8bn) in lendinganything Wells Fargo leads in must be bad

dakolli: Actually I believe they're just actually complying with new laws to disclose their balance sheets for these types of loans. Many other banks like JP Morgan have much higher amounts of these loans on their balance sheets, but refuse to report and are exploiting certain loopholes.The requirement to disclose has only existed for a year I believe, but many are kicking the can or claiming that it would cause them issues.

r_lee: don't worry, they're adopting AI

r_lee: Are you saying that they're using their private-credit portfolio as a Tier 1 capitalization to meet their regulatory demands (not sure if the ~10-15 something% rule has come back yet?)Been a bit out of the finance game