Central Banks
Private Credit and Bank Competition for Deals Poses Risks, Fed Says
- Competition and dry powder could lead to lower deal standards
- Researchers also highlighted use of synthetic risk transfers
The Marriner S. Eccles Federal Reserve building in Washington, DC.
Photographer: Stefani Reynolds/BloombergThis article is for subscribers only.
The continued competition between banks and direct lenders to win deals could compromise underwriting standards in transactions, researchers at the Federal Reserve wrote in a note Friday.
The growth of dry powder — which has quadrupled relative to 2014, according to the note — and managers’ need to deliver returns to their limited partners could lead them to choose riskier deals and offer looser documents as a slowing economy leads to fewer opportunities, Fang Cai and Sharjil Haque wrote.