Bank watchdog probes Barclays’ risk reporting on private credit loans
The Bank of England’s Prudential Regulation Authority is reportedly reviewing Barclays’ handling of loans linked to private credit firms. The inquiry follows concerns raised by a Barclays insider that derivatives used to finance the loans may have been recorded in a portfolio that understated their risk, potentially leaving the bank short of capital and overstating profits.
Barclays is said to have built up billions of dollars of exposure to private credit through derivatives. Its shares fell 3.5% on Monday, and it is due to publish results on Thursday. The review comes amid wider concern about the risks private credit poses to banks: Barclays previously reported losses linked to the collapse of US firms Tricolor and Market Financial Solutions, including a £228m hit from the latter.
- The Bank of England is reportedly reviewing Barclays’ private credit loans.
- Derivatives may have been logged as less risky than they were.
- Barclays shares fell 3.5% ahead of its results.
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Private credit is lending provided by investment firms and other non-bank lenders, often to businesses that may not borrow through ordinary bank loans. Banks can still be exposed to this lending by financing private credit firms or using derivatives, contracts whose value depends on another asset or loan.
Barclays is a major UK bank, and the Bank of England’s Prudential Regulation Authority supervises banks to check they can withstand losses and hold enough capital. How a bank records the risks attached to loans and related contracts can affect the amount of capital it is required to keep and the profits it reports.
The issue matters because losses linked to private credit borrowers can affect both lenders and the banks that finance them. Barclays has previously reported losses connected to the collapses of US firms Tricolor and Market Financial Solutions, illustrating how problems at individual firms can reach a bank’s accounts.
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Originally published by The Guardian as “Bank of England said to be reviewing Barclays’ handling of private credit loans”.