US Treasury to Engage with Insurance Regulators on Private Credit Lenders, Sources Indicate

A street sign for Wall Street stands outside the New York Stock Exchange (NYSE) in New York City, New York, U.S., June 28, 2021. REUTERS/Andrew Kelly/File Photo Summary: The U.S. Treasury intends to hold discussions with insurance regulators to gain insights on leverage and liquidity. These consultations arise amid growing concerns regarding asset quality and liquidity among private credit lenders. Treasury Secretary Scott Bessent acknowledges the positive impact of private credit on the U.S. economy but stresses the importance of mitigating financial risks. WASHINGTON, March 29 (Reuters) - According to two sources, the U.S. Treasury Department plans to initiate a series of meetings with both domestic and international insurance regulators in the coming weeks to address recent fluctuations in the unpredictable private credit markets. Investor sentiment in the $2 trillion non-bank lending sector has wavered due to concerns about liquidity, transparency, and lending practices. Since January, Secretary Bessent has been preparing to establish ongoing consultations with insurance regulators, with the first meeting potentially announced as soon as Wednesday. Future discussions will be guided by the outcomes of this initial meeting, aiming to enhance factual oversight of private credit lenders and their relationships with regulated financial entities. Although the Treasury lacks direct regulatory power over the insurance sector, Bessent aims to position the department as a central resource and forum for all 50 state insurance regulators. Officials at the Treasury are eager to hear insights on issues such as fund-level leverage, the reliability of private credit ratings, offshore reinsurance practices, and investment liquidity in private credit markets. Sources emphasize that any potential policy changes would follow a comprehensive dialogue. A spokesperson from the U.S. Treasury has not yet provided a comment. During a speech at the Economic Club of Dallas in February, Bessent, a former hedge fund manager, expressed concern over how assets transition from private credit lenders to regulated financial institutions like pension funds, banks, or captive insurance companies. "Treasury gets involved," Bessent noted, highlighting the significance of monitoring these assets. He remarked that private credit lending has played a crucial role in providing financing during regulatory tightening post the 2008-2009 financial crisis and during the liquidity crunch amid the COVID-19 pandemic. However, Bessent emphasized the necessity for private credit lenders to maintain prudence in their loan portfolios. He also indicated the importance of understanding the potential broader economic implications and the need to prevent financial contagion. While he supports allowing individual investors to access private credit assets through retirement accounts, he cautioned that the Treasury will be involved in regulating such asset transfers to ensure they do not become a repository for subpar investments. He affirmed that the previous administration would not permit American workers' savings to be jeopardized by toxic assets. Reporting by David Lawder; Editing by Edmund Klamann. Our Standards: The Thomson Reuters Trust Principles.