Update: original comment should be. 300B/1.2T*(10% of bank funds) = 2.5%. If I'm reading comment correct. Also I believe the whole private credit ecosystem is about 1T.
In a catastrophic scenario: if the whole asset class went to 0 (on the banks asset sheet they would lose 2.5% - absorbable pain assuming its not leveraged through creative financial mechanisms).
I would wager that risk is more concentrated on certain institutions instead of across the board so acute pain likely.
I've been told by the head of compliance of the largest European banking group that 2.5% is exactly the threshold at which they begin to be very worried/ at systemic risk
Apparently they operate on very low level of tolerable risk (way lower than I thought)
>2.5% is likely still survivable, but i think risk departments + regulators are all a lot less risk tolerant after seeing how quickly things went south in 2008 and worries about an out of control spiral
That's only loans to non bank financial institutions.
Total bank balance sheets are about $25T.
And then that 25% is 10% of US banks' entire lending portfolio, so private credit is about 2.5% of their entire portfolio.