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%)

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JumpCrisscross 4 hours ago | parent | next [-]

> 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-...

[2] https://www.wsj.com/livecoverage/stock-market-today-dow-sp-5...

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kelp6063 4 hours ago | parent [-]

good explanation, thanks

	▲	JumpCrisscross 4 hours ago \| parent [-]
		You're welcome! Also, bank credit is like $20tn in the U.S. [1]. [1] https://fred.stlouisfed.org/series/TOTBKCR

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rchaud 4 hours ago | parent | prev | next [-]

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.

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epsteingpt 3 hours ago | parent | prev | next [-]

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.

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boringg 4 hours ago | parent | prev | next [-]

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.

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karambahh an hour ago | parent | next [-]

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 41 minutes ago \| parent [-]
		>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

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bagacrap 4 hours ago | parent | prev | next [-]

That's only loans to non bank financial institutions.

Total bank balance sheets are about $25T.

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overtone1000 4 hours ago | parent | prev [-]

And then that 25% is 10% of US banks' entire lending portfolio, so private credit is about 2.5% of their entire portfolio.

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4 hours ago | parent | prev | next [-]

[deleted]

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fastball 4 hours ago | parent | prev [-]

Off by an order of magnitude.