The US Department of the Treasury is taking action to regulate private lending and plans to collaborate with insurance regulatory authorities to prevent risks in a 2 trillion market.

In recent weeks, concerns about liquidity, transparency, and loan discipline have shaken the confidence of investors in the $2 trillion non-bank lending sector. According to sources, the US Treasury Department plans to hold a series of high-level consultations with domestic and international insurance regulators in the coming weeks. This action marks the regulatory authorities, led by Treasury Secretary Scott Bessent, beginning substantive assessments of the increasing risk exposure of insurance companies in the private credit sector. The sources revealed that Bessent has been planning to start regular and ongoing consultations with insurance regulators since January, possibly announcing the first meeting as early as Wednesday. Based on the meeting results, participants will determine the direction of future cooperation, aimed at enhancing regulatory oversight of private credit institutions based on facts and transparency, as interaction between private credit institutions and regulated financial institutions increases. Although the Treasury Department does not have direct regulatory authority over the insurance industry, it is trying to play a "convener" role by integrating regulatory resources from various states and internationally to establish an information exchange platform to prevent the emergence of systemic financial risks arising from illiquid assets. The sources said that Treasury officials are eager to hear feedback from regulatory agencies on increased leverage at the fund level, consistency of private credit ratings, use of offshore reinsurance, and liquidity of investments in the private credit market, among other aspects. They added that any policy proposals will only be implemented after a series of consultations. A Treasury Department spokesperson has not responded to requests for comment. The background to this regulatory development is the deepening connection between the insurance industry and private credit. In recent years, North American insurance companies have significantly increased the proportion of private credit in their investment portfolios in pursuit of higher returns, with some institutions allocating up to 35%. In February this year, former hedge fund manager Bessent stated during a speech at the Dallas Economic Club that when assets are transferred from private credit institutions to regulated financial institutions such as pension funds, banks, or specialized insurance companies, "the Treasury Department will intervene." He emphasized, "I am concerned with how this transfer affects the regulated financial system." Regulators have expressed deep concerns, focusing on areas such as the use of leverage at the fund level, transparency of asset valuation, and liquidity pressures during extreme market volatility. Particularly, the use of offshore reinsurance tools by private credit institutions is seen as potentially concealing cross-border pathways of risk transmission. Through these consultations, the Treasury Department hopes to evaluate the accuracy and consistency of the existing rating systems, ensuring that private credit assets held by insurance companies do not become a "spark" triggering a liquidity crisis in an economic downturn. Bessent added that private credit loans helped fill the financing gap after the tightening of bank regulations during the 2008-2009 financial crisis and bank loan freezes during the COVID-19 pandemic. He hopes to ensure that private credit institutions maintain a "prudent" approach in their loan portfolios. He said, "We need to assess their impact on the overall economy. The results have been significant, but the key issue is how they affect the regulated system and prevent the spread of risks." Bessent noted that individual investors can invest in private credit assets through retirement accounts such as pensions or 401(k)s, but cautioned against the Treasury Department's involvement in the process of regulating private assets transferred to individual investor accounts. He emphasized that the Trump administration will not allow the savings and investment accounts of American workers to become a "dumping ground" for "rotten" assets. At the macro policy level, the Financial Stability Oversight Council (FSOC) held a special meeting on March 25. Bessent received a report on the latest developments in the private credit market at the meeting and emphasized the importance of monitoring the risk contagion of non-bank financial institutions. Meanwhile, the FSOC released proposed revisions to the guidelines for identifying non-bank financial institutions, aiming to strengthen the regulatory toolbox to implement stricter prudential regulation on systematically important non-bank institutions when necessary. Pressure from Congress has also accelerated this process, with Representatives Seth Moulton and Stephen Lynch recently sending a joint letter to the House Appropriations Committee urging the Treasury Department to require federal regulatory agencies to conduct stress tests on the private credit market to quantify its potential impact on the overall macroeconomic situation. Real-time feedback from the market further validates the urgency of regulatory intervention. Recently, well-known private credit funds, including Oaktree Capital, have faced significant redemption pressure, and large financial institutions such as JPMorgan have begun adjusting their redemption rules for private credit products, attempting to mitigate the risk of fund outflows by limiting quarterly redemption ratios. Research data further reveals potential chain reactions: Currently, insurance companies hold around $110 billion in US private credit assets, with $90 billion in outstanding capital commitments. This means that in a deteriorating market environment, insurance companies may be forced to sell stocks or bonds on a large scale in the public market to fulfill capital commitments, a cross-market asset linkage that is widely seen as a key source of systemic risk.