BoE reportedly examines whether Barclays misrepresented private credit exposure
BCS•The Bank of England is reportedly examining whether Barclays misrepresented the risk of illiquid private credit loans after an insider raised concerns. Barclays shares fell 2.6%.
1. Regulatory complaint
The Prudential Regulation Authority received a complaint earlier this year about how Barclays recorded derivatives used to finance private credit loans, the report said. The complaint concerned the allocation of total return swaps referencing illiquid loans to the bank’s trading book; it did not disclose an amount.
2. Risk classification
The report said the complaint alleged Barclays’ handling of the deals breached PRA rules restricting banks from assigning derivatives backed by illiquid collateral to their trading books unless they can provide enough evidence to justify that treatment. The concern is that classifying derivatives linked to illiquid loans as easier to trade could understate risk and reduce funds set aside for potential losses.
3. Barclays response
The report said Barclays traders argued the exposure should be treated as a traded position because it was hedged through a matching swap with another counterparty. Barclays said it takes its regulatory obligations seriously and declined to comment further on its interactions with the regulator. The Bank of England declined to comment on the report.
