European financial supervisors are seeking a clearer picture of banks’ exposure to private credit markets, but they are running into resistance from the US Treasury. The European authorities are concerned about the global private-credit industry, estimated at around $2 trillion, with much of it concentrated in the United States.

Concerns Over Private Credit Markets

Recent market strains, including redemption restrictions at some funds and a series of high-profile corporate defaults, have heightened concerns about hidden risks spreading through the financial system. European regulators have been pressing for more information on the underlying assets to which financial institutions they oversee are exposed, including details on borrowers, valuation methods, and guarantees backing investments.

However, US Treasury officials have resisted broader data-sharing, arguing that the information is confidential and that additional disclosure requirements would impose unnecessary burdens on firms. The discussions between US and European supervisors have taken place in international forums, including the Financial Stability Board.

Implications for Financial Regulation

The dispute is part of a broader divide across the Atlantic on a range of matters, including international security, climate change, trade, market regulation, and technology. European supervisors worry that they lack sufficient ‘look-through’ into private-credit vehicles to understand where risks ultimately reside.

The European Central Bank recently modeled a severe shock to global private-credit markets and found that direct losses would be manageable for banks and investors. However, the exercise also showed that the biggest damage would come not from the private-credit loans themselves but from broader market selloffs and valuation losses spreading through the financial system.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.