4 ms·

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 ab

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%)

deleted 6mo ago
[deleted]
JumpCrisscross 6mo ago
> this isn't that big of a number in the larger scale of US banking It's not. It's just that we're seeing potentially 10% losses on the portfolio level [1], which could imply up to–up to!–5% losses to the banks' loans to those lenders. Again, tens of billions of dollars of losses are totally absorbable. But Morgan Stanley's stock price took a hit when it gated one of these funds [2]. And some banks (Deutsche Bank, somehow, fucking again, Deutsche Bank) have small ($12n) but concentrated portfolios where a single wipeout could materially impair their ~$80bn of risk-weighted assets. [1] https://www.reuters.com/business/us-private-credit-defaults-hit-record-92-2025-fitch-says-2026-03-06/ https://www.reuters.com/business/us-private-credit-defaults-... [2] https://www.wsj.com/livecoverage/stock-market-today-dow-sp-500-nasdaq-03-12-2026/card/morgan-stanley-private-credit-fund-hit-with-redemption-requests-IS8PSZh497HC5aF4CkGN https://www.wsj.com/livecoverage/stock-market-today-dow-sp-5...
- kelp6063 6mo ago
  good explanation, thanks
  - JumpCrisscross 6mo ago
    You're welcome! Also, bank credit is like $20tn in the U.S. [1]. [1] https://fred.stlouisfed.org/series/TOTBKCR https://fred.stlouisfed.org/series/TOTBKCR
- dopamean 6mo ago
  you're the only person replying to comments on this post that seems to know what they're talking about. what do you do for a living?
- KaiserPro 6mo ago
  > Again, tens of billions of dollars of losses are totally absorbable. They are, in isolation. The _problem_ is that PE doesn't generally trade assets in public, which means that valuation only really come when you're either wanting to buy, wanting to sell, wanting to re-loan or in deep shit. This means that something like MFS can happen (https://www.reuters.com/business/finance/mfs-creditors-claim-18-billion-shortfall-bloomberg-news-reports-2026-03-10/ https://www.reuters.com/business/finance/mfs-creditors-claim...) where assets appear to be used to raise two different loans without the other lender knowing. But! banking can absorb a few billion right? yes, so long as people are not asking questions about other assets. Because PE assets are not publicly traded (hence private in private equity) the value of assets are calculated at much lower rates than on a public market. This means that the assets that PE holds could be wildly over or under valued. The way we assess the value of PE holdings is thier looking at the Net Asset Value calculations (which might be done twice a year) or infer the value based on public information. Now we are told that markets are rational and great at working the value of things. This dear reader is bollocks. Because PE is a black box, if a class of asset that they hold (ie SaaS buisnesses, or high street stores, or coffee trading etc) looks like its not doing well, people will start to write down the value of people holding loans given to PE, or shares in PE. This creates contagion, because one PE company is in distress, the market goes "oh shit, the whole thing is on fire" and you get bank runs (because where is the money coming from to loan to PE? thats right banks, eventually)
fastball 6mo ago
Off by an order of magnitude.
rchaud 6mo ago
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.
boringg 6mo ago
Update: original comment should be. 300B/1.2T*(10% of bank funds) = 2.5%. If I'm reading comment correct. Also I believe the whole private credit ecosystem is about 1T. In a catastrophic scenario: if the whole asset class went to 0 (on the banks asset sheet they would lose 2.5% - absorbable pain assuming its not leveraged through creative financial mechanisms). I would wager that risk is more concentrated on certain institutions instead of across the board so acute pain likely.
- bagacrap 6mo ago
  That's only loans to non bank financial institutions. Total bank balance sheets are about $25T.
- overtone1000 6mo ago
  And then that 25% is 10% of US banks' entire lending portfolio, so private credit is about 2.5% of their entire portfolio.
- karambahh 6mo ago
  I've been told by the head of compliance of the largest European banking group that 2.5% is exactly the threshold at which they begin to be very worried/ at systemic risk Apparently they operate on very low level of tolerable risk (way lower than I thought)
  - AnishLaddha 6mo ago
    >2.5% is likely still survivable, but i think risk departments + regulators are all a lot less risk tolerant after seeing how quickly things went south in 2008 and worries about an out of control spiral
epsteingpt 6mo ago
Someone else owns all the other credit. This is the 1st domino. The liquidity challenges of a $1.2T shock to the economy is meaningful, because it has knock on effects on equity as well. When private credit (which is propping up private valuation) falls, private equity also falls and then everyone realizes that everyone else has been swimming naked.
tmaly 6mo ago
If there are credit default swaps involved anywhere, this could amplify the pain in the economy.
pfannkuchen 6mo ago
Yeah but don’t major problems usually take the form of debt chains being forcibly unwound? Like default happens somewhere, expected money doesn’t land, that next entity who was receiving the debt money that defaulted defaults on something because now they can’t pay, expected debt payment money from them doesn’t land, that next entity etc. So I think it’s not about how much of the debt is this, it would be about how intertwined it is with other things. I’m not claiming it’s major btw, I’m just clarifying that in my understanding it could be a small percent but still end up causing default cascades, or it could be a large percent and not, depending on the debt graph.

deleted 6mo ago

[deleted]

JumpCrisscross 6mo ago

> this isn't that big of a number in the larger scale of US banking It's not. It's just that we're seeing potentially 10% losses on the portfolio level [1], which could imply up to–up to!–5% losses to the banks' loans to those lenders. Again, tens of billions of dollars of losses are totally absorbable. But Morgan Stanley's stock price took a hit when it gated one of these funds [2]. And some banks (Deutsche Bank, somehow, fucking again, Deutsche Bank) have small ($12n) but concentrated portfolios where a single wipeout could materially impair their ~$80bn of risk-weighted assets. [1] https://www.reuters.com/business/us-private-credit-defaults-hit-record-92-2025-fitch-says-2026-03-06/ https://www.reuters.com/business/us-private-credit-defaults-... [2] https://www.wsj.com/livecoverage/stock-market-today-dow-sp-500-nasdaq-03-12-2026/card/morgan-stanley-private-credit-fund-hit-with-redemption-requests-IS8PSZh497HC5aF4CkGN https://www.wsj.com/livecoverage/stock-market-today-dow-sp-5...

kelp6063 6mo ago
good explanation, thanks
- JumpCrisscross 6mo ago
  You're welcome! Also, bank credit is like $20tn in the U.S. [1]. [1] https://fred.stlouisfed.org/series/TOTBKCR https://fred.stlouisfed.org/series/TOTBKCR
dopamean 6mo ago
you're the only person replying to comments on this post that seems to know what they're talking about. what do you do for a living?
KaiserPro 6mo ago
> Again, tens of billions of dollars of losses are totally absorbable. They are, in isolation. The _problem_ is that PE doesn't generally trade assets in public, which means that valuation only really come when you're either wanting to buy, wanting to sell, wanting to re-loan or in deep shit. This means that something like MFS can happen (https://www.reuters.com/business/finance/mfs-creditors-claim-18-billion-shortfall-bloomberg-news-reports-2026-03-10/ https://www.reuters.com/business/finance/mfs-creditors-claim...) where assets appear to be used to raise two different loans without the other lender knowing. But! banking can absorb a few billion right? yes, so long as people are not asking questions about other assets. Because PE assets are not publicly traded (hence private in private equity) the value of assets are calculated at much lower rates than on a public market. This means that the assets that PE holds could be wildly over or under valued. The way we assess the value of PE holdings is thier looking at the Net Asset Value calculations (which might be done twice a year) or infer the value based on public information. Now we are told that markets are rational and great at working the value of things. This dear reader is bollocks. Because PE is a black box, if a class of asset that they hold (ie SaaS buisnesses, or high street stores, or coffee trading etc) looks like its not doing well, people will start to write down the value of people holding loans given to PE, or shares in PE. This creates contagion, because one PE company is in distress, the market goes "oh shit, the whole thing is on fire" and you get bank runs (because where is the money coming from to loan to PE? thats right banks, eventually)

fastball 6mo ago

Off by an order of magnitude.

rchaud 6mo ago

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.

boringg 6mo ago

Update: original comment should be. 300B/1.2T*(10% of bank funds) = 2.5%. If I'm reading comment correct. Also I believe the whole private credit ecosystem is about 1T. In a catastrophic scenario: if the whole asset class went to 0 (on the banks asset sheet they would lose 2.5% - absorbable pain assuming its not leveraged through creative financial mechanisms). I would wager that risk is more concentrated on certain institutions instead of across the board so acute pain likely.

bagacrap 6mo ago
That's only loans to non bank financial institutions. Total bank balance sheets are about $25T.
overtone1000 6mo ago
And then that 25% is 10% of US banks' entire lending portfolio, so private credit is about 2.5% of their entire portfolio.
karambahh 6mo ago
I've been told by the head of compliance of the largest European banking group that 2.5% is exactly the threshold at which they begin to be very worried/ at systemic risk Apparently they operate on very low level of tolerable risk (way lower than I thought)
- AnishLaddha 6mo ago
  >2.5% is likely still survivable, but i think risk departments + regulators are all a lot less risk tolerant after seeing how quickly things went south in 2008 and worries about an out of control spiral

epsteingpt 6mo ago

Someone else owns all the other credit. This is the 1st domino. The liquidity challenges of a $1.2T shock to the economy is meaningful, because it has knock on effects on equity as well. When private credit (which is propping up private valuation) falls, private equity also falls and then everyone realizes that everyone else has been swimming naked.

tmaly 6mo ago

If there are credit default swaps involved anywhere, this could amplify the pain in the economy.

pfannkuchen 6mo ago

Yeah but don’t major problems usually take the form of debt chains being forcibly unwound? Like default happens somewhere, expected money doesn’t land, that next entity who was receiving the debt money that defaulted defaults on something because now they can’t pay, expected debt payment money from them doesn’t land, that next entity etc. So I think it’s not about how much of the debt is this, it would be about how intertwined it is with other things. I’m not claiming it’s major btw, I’m just clarifying that in my understanding it could be a small percent but still end up causing default cascades, or it could be a large percent and not, depending on the debt graph.