ICYMI – Fed’s Cook Delivers Comments on Private Credit & Financial Resilience
Washington, D.C. – This week, Bloomberg reported that Federal Reserve Governor Lisa Cook, a Biden appointee, stated that the increase in private credit lending has not affected the financial system’s resilience, underscoring the stability of private credit loans.
Speaking at an event hosted by the Brookings Institution in Washington, D.C. on Wednesday, Cook said:
“Overall, I think that the growth of private credit likely has not materially adversely affected the financial system’s resilience. Private credit funds appear well-positioned to hold the riskiest parts of corporate lending. These intermediaries generally use little leverage and are organized as closed-end funds, which means that investors cannot withdraw the funding supporting the investments.”
Cook also noted the growing involvement of banks in the private credit market. The emerging partnerships between banks and private credit firms provide more businesses access to capital and tailored loans to fit their needs.
The American Investment Council (AIC) is the premier trade association in Washington for the private credit industry and its members represent two-thirds of all assets under management.
AIC recently released a report, authored by PitchBook, highlighting the growing role of private credit in serving small and middle-market businesses. Learn more about the benefits of private credit for businesses and the industry’s impact on the economy here.
Please see the full Bloomberg article below.
Fed’s Cook Says Private Credit Hasn’t Hurt Financial Resilience
By Amara Omeokwe and Craig Torres | Wednesday, May 8, 2024
Federal Reserve Governor Lisa Cook said the rise in lending by nonbank investment firms bears watching but doesn’t appear to have created excessive risk for the financial system.
“The growth of private credit likely has not materially adversely affected the financial system’s resilience,” Cook said at an event held by the Brookings Institution on Wednesday.
“Private credit funds appear well positioned to hold the riskiest parts of corporate lending” and are less vulnerable to funding runs, she added.
Cook, who chairs the Federal Reserve board’s committee on financial stability, said bank profitability remains solid and deposit volatility has settled down since a series of bank runs in 2023 when three lenders collapsed. She said losses on bond portfolios and commercial real estate concentrations remain an area of focus for bank supervisors.
“Supervisors are working closely with the set of banks that have experienced outsized fair-value losses from higher interest rates and with banks that have high concentrations of commercial real estate loans,” she said, adding that CRE risks are “sizable but manageable.”
Fed policymakers held their benchmark interest rate steady at their meeting last week at a 23-year high of 5.25% to 5.5%, and said that progress on lowering inflation toward their 2% target had stalled in recent months. Officials as recently as March signaled three rate cuts were possible during 2024, but a string of firmer-than-expected inflation readings has made the timing and number of cuts less certain.
The US economy broadly remains on solid footing, which some Fed officials have said gives them room to be patient on the decision to begin lowering rates. The labor market has shown signs of cooling, but employers continue to add jobs at a steady pace and unemployment is low, at 3.9% in April.
Cook said household balance sheets look strong, though she is watching the rising delinquency rates on auto loans and credit-card debt as they may signal rising borrower stress, “especially among some lower- and moderate-income households.” She did not comment on the outlook for interest rates.
Cook, a Biden appointee, joined the Fed board in May 2022, and was previously an economics professor at Michigan State University.
