US Regional Bank Rout Deepens on Losses From Fraud

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00:00The amounts for these two banks, the losses are actually quite small,

00:03tens of millions and something, but they come on the back end of losses we've seen on the first

00:09brands collapse in the U.S. and the tricolor one, which has raised concern generally about what's

00:15going on in the credit risk among banks. That's spilling over now to Europe. So these things are

00:21piling up and increasing anxiety for banks, and that's why the hit's so big right now.

00:27The other point about it is that we're talking about private credit here. We're not really

00:32talking about a broader, more public credit type of situation. Is there a fear that it will bleed

00:38into the other parts of the market, or what is the fear exactly?

00:44That's happening, too. You're absolutely right. So, I mean, by definition, private markets and

00:50private credit is private. So there's little information. The banks know little about it.

00:54There's concern across banking that they've invested and lent to private credit borrowers,

01:00and they're exposed where they don't know about other people's exposure. These add up,

01:04and the opacity is now something that's causing growing concern. They are worried about it. It's

01:10a booming asset class. Banks have built up massive exposure, and they're concerned now it's coming

01:16home to roost.

01:17So what is the solution here? If it's private credit for a reason, I guess it's a little opaque,

01:22but surely the people actually lending the money are supposed to do their due diligence. Is there

01:26a suggestion that there are plenty of bad actors out there, or that there just isn't enough

01:31information to be had?

01:34Well, you know, as is typically the case, if it's a booming asset class, and someone else lends to,

01:40you know, some private credit borrower, and then the next bank says, oh, you know, whatever has

01:46lent money to them. So I'm just going to do it too. And they just tick the box of the, you know,

01:50due diligence. So when such a big business is happening, at some point, the banks tend to cut

01:57corners. And this is now what's, again, causing concern that they've not done the due diligence

02:03sufficiently enough, and have exposure in their books that they're not even aware of, that risks

02:08have built up that they're not aware of, and that could come and explode into their faces.