By Rebecca Ungarino
The Federal Reserve is seeking more information from banks on their exposure to financial institutions outside the traditional banking sector, such as private credit funds, as regulators try to keep pace with the rapid growth of banks' lending to less transparent pockets of financial services.
Michelle Bowman, the Fed's vice chair for supervision, said during a Congressional hearing on Thursday that the Fed launched a new data-collection effort last month in an effort to provide more transparency and specificity into where "bank lending eventually ends up within the private credit space and within the non-bank space."
"We hope that that will provide us with a much better view on where the vulnerabilities might lie," said Bowman, speaking at a House Financial Services Committee hearing. She added that "it is something that we need to know more about, because it's very opaque."
Bowman, the Fed's top bank regulator appointed by President Trump, was responding to questions from Democratic Reps. Juan Vargas of California and Ritchie Torres of New York, who pressed her on her views on private credit and its interconnectedness with banking.
She noted that while private credit is a "very important service" and makes up a relatively small portion of banks' overall lending, the Fed has been examining the space closely. Bowman, a former community banker and state bank commissioner who generally favors a more hands-off approach to supervision, said certain post-2008-09 financial crisis banking restrictions led to private credit expanding outside of banking.
Bank lending to non-bank financial firms such as private-credit funds and insurance companies was the fastest-growing loan segment from 2010 to 2024, with a 21.9% compound annual growth rate, according to an analysis by the Federal Deposit Insurance Corp.
In recent quarters, some banks have started to disclose how much they lend to non-bank financial institutions, or NBFIs, after they were criticized last fall for ties to the now-bankrupt non-bank auto lender Tricolor Holdings. But aspects of banks' disclosures are not yet reported consistently, leading to concerns from some lawmakers and industry watchdogs that regulators may miss areas where risk is building up.
"We did see from some of the bankruptcies and challenges last fall with several private credit funds that there were poor collateral management, there was some fraud that was occurring -- and then others, bankruptcies -- and a lack of clear disclosures," Bowman said.
During the hearing on Thursday, Bowman appeared alongside the heads of the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, and the National Credit Union Administration. Together they promoted their broad deregulatory initiatives that President Trump has made a centerpiece of his agenda.
Shares of banks outperformed the broader market. The State Street SPDR S&P Bank ETF rose 3% while the S&P 500 was up 0.5%.
Write to Rebecca Ungarino at rebecca.ungarino@barrons.com
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(END) Dow Jones Newswires
June 04, 2026 15:43 ET (19:43 GMT)
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