Comment Comment by JumpCrisscross > the banks' lending to the private credit firms is subject to the same regulations and constraints as their lending to other borrowersYes.> the same regulations and constraints that led them not to lend to the underlying borrowers in the first placeNo. Non-bank financial institutions (NBFIs a/k/a shadow banks) compete with banks. They also borrow from banks.> When banks lend to private credit funds/firms, it tends to be through senior, secured loans which will be less risky than the underlying loansCorrect. Assuming 1.5x leverage and 60% recovery, you'd expect no more than half of portfolio losses to transmit to their lenders. parent JumpCrisscross 8 months ago
Yes.
> the same regulations and constraints that led them not to lend to the underlying borrowers in the first place
No. Non-bank financial institutions (NBFIs a/k/a shadow banks) compete with banks. They also borrow from banks.
> When banks lend to private credit funds/firms, it tends to be through senior, secured loans which will be less risky than the underlying loans
Correct. Assuming 1.5x leverage and 60% recovery, you'd expect no more than half of portfolio losses to transmit to their lenders.