Private credit stress tests arrive as regulators ask who holds the second-lien risk

WASHINGTON — The private-credit boom was sold as a cleaner banking system: risky loans live somewhere else. Supervisors are now asking the obvious follow-up. Where is somewhere else, and what happens to the banks that still warehouse, subscribe, or lend against those funds?

Firms said the first stress-test templates look crude, which is how every useful regulatory exercise begins. The useful part is the request for look-through on second-lien and NAV-loan structures that have multiplied since 2022.

Managers who can produce that map will keep gathering assets. Managers who treated opacity as a feature will discover that it was a product cycle.