At a glance
- Under PRA rules cited by the FT, banks cannot assign derivatives backed by illiquid collateral to the trading book unless they can provide evidence to the contrary.
- The FT account describes a review of how the positions were recorded, not a conclusion about them; neither report said what stage the review has reached or whether any finding has been made.
- For allocators whose private credit funds are financed by bank lines, that classification is a question they can put to a manager.
The Bank of England is understood to be reviewing whether Barclays traders misrepresented private credit loans to understate their risk, Alternative Credit Investor reported on Oct. 20, citing the Financial Times.
Under PRA rules cited by the FT, banks cannot assign derivatives backed by illiquid collateral to the trading book unless they can provide evidence to the contrary. The question turns on which book the swaps sat in: trading-book treatment implies less risk and therefore less capital held against potential losses.
The insider complaint earlier this year concerned how Barclays recorded total return swaps used to finance loans to private credit firms, the FT said. The review follows that complaint. The FT account describes a review of how the positions were recorded, not a conclusion about them; neither report said what stage the review has reached or whether any finding has been made.
For allocators whose private credit funds are financed by bank lines, that classification is a question they can put to a manager. So is what the financing costs if the bank has to hold more capital against it.
Reported by the Private Credit & BDCs desk from Alternative Credit Investor and Financial Times (via Alternative Credit Investor). Published . Corrections