Bank of England Reviews Barclays’ Private Credit Exposure
The Prudential Regulation Authority is reported to be reviewing how Barclays logged total return swaps used to finance loans to private credit firms, after concerns were raised by an insider. The derivatives are said to have been booked in a portfolio implying lower risk. Barclays said its treatment “is consistent with accounting and regulatory capital requirements”.
If the swaps were misclassified, the bank may not have held enough capital against potential losses, and its profitability could have been flattered. Barclays is said to have built billions of dollars of exposure to private credit through such derivatives; it says the conditions for its booking were “supported by appropriate governance internally and by external advisers”. The review lands as the private credit sector is under strain, and as London shares fell more than 1% on Monday. For regulators, the episode is a test of how far risk has migrated from bank balance sheets into lightly supervised lending.