FT reported on Bank of England's review of Barclays — The Guardian
In the United Kingdom, the Bank of England’s Prudential Regulation Authority, according to The Guardian, citing the Financial Times, is examining Barclays’ handling of loans linked to the private credit sector. The review was reportedly launched earlier this year after concerns were raised by a bank insider.
Questions over derivatives accounting
According to the Financial Times, the questions concern how Barclays accounted for derivatives used to finance loans to private credit companies. Derivatives are financial contracts whose value tracks the performance of an underlying asset.
FT sources claim that these contracts may have been assigned to the wrong portfolio, making their risk level appear lower than it actually was. This could have meant that the bank did not hold enough capital to cover potential losses, and may also have increased its profitability. According to the publication, Barclays accumulated exposure worth billions of dollars in private credit loans through derivatives.
Bank and market reaction
Barclays said it takes its regulatory obligations seriously in the markets where it operates, but does not comment on its interactions with regulators. The Bank of England declined to comment.
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Barclays shares fell 3.5% on Monday, marking the second-largest decline among companies in the FTSE 100 index. The bank is due to publish its latest financial results on Thursday.
Private credit risks
Private credit companies use investors’ funds to lend to businesses rather than customer funds or deposits, and are subject to less regulation. Critics and regulators fear that the consequences of weakening lending standards in this sector could destabilize traditional banks, which are becoming increasingly closely connected to it.
Barclays was among the banks that suffered losses following the collapse of U.S. car company Tricolor, alongside JP Morgan. The bank also incurred losses of £228 million after the collapse of mortgage lender Market Financial Solutions in February amid fraud allegations.
