Private credit risks to be assessed by US government watchdog

THE US Government Accountability Office (GAO) is assessing the risks posed by private credit, in a sign that Washington is further scrutinising the impact of the US$1.7 trillion industry on the broader economy.

The agency’s examination, prompted by a request from US Senators Elizabeth Warren and Jack Reed to the Comptroller General, should result in a draft report this spring, according to a document seen by Bloomberg News.

The report will explore how the industry is interconnected with the broader financial system and how federal agencies monitor and mitigate the sector’s risks to financial stability.

It will be based in part on interviews with federal agencies such as the US Federal Reserve and the Securities and Exchange Commission, as well as with private credit market participants including funds, banks, investors and credit rating agencies.

The GAO responded to a request for comment with an automated message saying it has stopped operations because of the US government shutdown.

In July, Warren sent letters to several ratings agencies to assess the risks in the private credit market, expressing concerns that some companies may be inflating ratings of private debt instruments, which could imperil the larger financial system.

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Bloomberg reported in June that Egan-Jones Ratings, which has billed itself as the biggest ratings company in private credit, has drawn scrutiny over its upbeat ratings of various private credit loans.

The US GAO is an independent agency that provides lawmakers and other federal agencies with reports documenting how US taxpayer dollars are spent.