The “shadow banking” worries of the years following the GFC seem to be firmly back in the spotlight, albeit generally referred to as non-bank financial intermediation (NBFI), private credit or private equity financing. Witness for example recent papers from the FSB, the IMFand speeches from officials at the ECB and Bank of England (herehere and here). Last week, the Bank of England sent a letter to the chief risk officers of banks operating in the UK following the UK PRA’s thematic review of private equity financing businesses.

The main regulatory areas of focus seem to be the general opacity of this market; the potential for interconnected and correlated risks across different exposures; and the patchy effectiveness of data aggregation and holistic risk management by banks in relation to relevant exposures and activities.

While CRE is not a large part of this world in the scheme of things (and is not flagged as such in any of the materials cited above), the growing role of alternative lenders in CRE and their use of various forms of fund-level leverage mean that it is part of it (and CRE does have an awkward historical relationship with financial stability, so regulators are always aware of it, and sometimes instinctively hostile to it). One to watch.

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