Doubt has been shed on the objectivity of the discussions in the House of Lords. They’ve been carried on by former partners of City Solicitors. 

My correspondents Tim Simpson and Byron McKeeby have been going at each other over selective discussing and selective reporting (in the case of Citywire)

If we are interested in private credit, and I think we ought to be, it’s worth getting to the bottom of what these lawyers said in the House of Lords discussions , complete rather than selective. Here’s Byron in conversation with Tim ..they’ve been arguing over an incomplete account from this Citywire.

As for Citywire’s selective reporting of the report, that’s why I posted a link to the whole report, which if it’s so relevant is either worth reading in its entirety, or not.

I leave interested parties to draw their own conclusions to these particular exchanges in oral evidence to the Committee, which seem the basis for Citywire’s selective reporting:

Here is what he posted

We may agree to disagree whether the Lords, and this particular Committee, is worth retaining, Tim.

See what you think, if this is a compromised committee, then I’m not sure what a good one is.

Lords Committee:

“During the oral evidence session with the Committee, HM Treasury did not reassure us that it has a firm grasp on the emerging issues related to private markets and their potential impact on financial stability. (Paragraph/Question 181)”

Relevant Witnesses were Lucy Rigby KC MP, Economic Secretary to the Treasury and City Minister; Lowri Khan CB CBE, Director of Financial Stability, HM Treasury; and Daniel Rusbridge, Deputy Director for Personal Finances and Funds, HM Treasury.

Lord Grabiner (Lords Committee): I have a couple of points that I would like to ask you about. First of all, arising out of Lord Sharkey’s question, in terms of what I would call plan B, which is in anticipation of another horrible GFC on a worst-case scenario, can we assume that there is a continuing dialogue between the Treasury and the regulators, and that you are not exclusively reliant upon the regulators to blow the whistle or let the red lights flash in the event of an anticipated similar catastrophe?

Lucy Rigby (HMT): As to the first point, you can certainly assume that there is a continuous dialogue, which is, I hope, entirely as you would expect. As the Treasury, we have a role in overseeing things. That is clearly not in the supervisory and granular way that the regulators do, but we would consider ourselves to have an important role in the process, and I say that as to financial stability more broadly.

Lord Grabiner: I hope so.

Lowri Khan: If I can add briefly to that, there are various formal ways in which we have a role, and there are more informal ways in which we have an ongoing dialogue. In particular, the Financial Policy Committee has a Treasury member. They are a non-voting member, but that means that we are present at all the meetings of the Financial Policy Committee and very much in the swim of those deliberations.

We are also present in the global Financial Stability Board as well. We do not just leave it to the Bank and the regulators in those fora. We spend a lot of time on cross-authority dialogue with the Bank, the FCA and the PRA. That is a daily matter. It is not a quarterly meeting for a catch-up. In that engagement, we focus particularly on some of the specific risks as well as on potential policy matters that might be pursued.

Lord Grabiner: That is very good. It is good to know. My other point was touched on by Lord Eatwell, and this will be very close to the Minister’s background as a competition lawyer. We have been told that bank lending through private credit only requires the individual bank to hold 20% of the risk-weighted capital, whereas, if banks lend directly to a company, they have to hold 100% of that capital. I am just an ignorant lawyer, really, but you are a competition lawyer, and you probably know the answer to this question. What is the justification for that discrepancy?

Lucy Rigby: Across the board, there is an acknowledgement that the banking sector as a whole is competitive, which is to the benefit of the wider economy. As to the stipulation that you are pointing to, Lord Grabiner, your suggestion is that it creates an uneven playing field. Is that right?

Lord Grabiner: It encourages banks that want more flexibility on their lending book to lend to the private market. They will be discouraged from lending because they would have to hold so much more capital to justify the loan. What I do not understand is why there is that discrepancy in the first place. There may be some economic explanation, but I am not quite sure what it is. Do you know?

Lucy Rigby: It is right to say that capital requirements right across the board—as you know, there are different requirements that apply to different levels of the stack—are put in place with a view to the size of specific banks and their specific lending activity. You will know that the FPC is reviewing capital requirements, and that review comes on the back of reforms that have been made recently, including to MREL [Minimum Requirement for Own Funds and Eligible Liabilities]. Because of the FPC review and reforms that have been made, there is an impetus for making sure that the banking sector is as competitive as possible, and we recognise that capital requirements are a piece of that.

Lord Grabiner: Finally, if that split of 20% and 100% is accurate, is that a source of concern to the Treasury? Does it give you concern because of the lack of knowledge about what is going on there in terms of potential exposure and potential risk?

Lucy Rigby: Lord Grabiner, I am going to turn to my officials on that. It is not something that has been raised with me in this context.

Lowri Khan: I cannot comment in detail on the specific capital that is held against specific investments.

The Chair: Why can you not comment on it?

Lowri Khan: I am not aware of the specifics. It will be context-specific.

Lord Grabiner: It is a pretty basic point, is it not? You must have thought about this. I hope somebody has thought about it.

Lowri Khan: Yes, indeed. To be clear, the way that risk weightings are applied generally to bank lending is an active area of consideration. There is ongoing work, for example, in the context of the PRA, thinking about how internal models can be made more accessible to smaller banks in particular, so it is definitely an active area.

Byron McKeeby: My question is slightly different. Should we be concerned about the fact that a lot of money is going from banks into what we call private credit? We do not have any visibility of what is going on in that marketplace. At the moment, banks are, presumably, also encouraged to lend more to that marketplace because of the much better risk weighting commitment that the individual bank is confronted with in respect of that lending profile.

Lowri Khan: That is understood. Clearly, we would be concerned if there was anything very distortionary going on.

Lord Grabiner: But you do not know that, or do you?

Lowri Khan: There are several dimensions to this. One is what it means for the safety and soundness of banks. A lot of work is being done in the context of the regular bank stress testing that goes on to ensure that those exposures are being managed.

Lord Grabiner: That goes to the position of the individual bank.

Lowri Khan: Yes, indeed.

Lord Grabiner: The bank is being stress-tested in terms of what its book looks like and, if things go wrong, what is going to happen to the book. What about what is going on outside in terms of the borrowing in that private marketplace?

Lowri Khan: You are right that the stress testing looks at it from the bank’s perspective, but it does consider the bank’s ability to manage its exposures. There has been particular work by the PRA to try to think about how well individual firms are managing their exposures in the round.

Thanks to Byron for alerting us to this dialogue. It suggests to me that private credit may not have quite the credibility we thought of it.

Following on from inquiries from the FT and Reuters , I am going to stay clear of lines of private credit drifting my way on my pensions.