Skip to content

FRM Part II · FRM Exam Part II · The Global Drivers of Private Credit

A risk officer at a bank reviews its lending to non-bank private credit funds. Which feature of private credit funds most directly raises concern that stress could be transmitted to the banking system?

Bank lending to private credit funds, together with fund leverage and credit lines, creates interconnections. Stress at funds can lead to credit line drawdowns and bank losses, so risk transmits to the banking system. The other options misstate how private credit funds are valued, regulated or exposed to risk.

  1. AFunds use leverage and credit lines from banks, creating interconnections between banks and private credit fundsCorrect
  2. BFunds hold only floating-rate loans, so their interest income cannot change
  3. CFunds publish daily mark-to-market prices for every loan
  4. DFunds are subject to the same capital rules as deposit-taking banks

Explanation

Bank credit lines and fund-level leverage link banks to private credit funds, so losses or drawdowns in the sector can feed back to banks. Floating-rate holdings do not remove credit risk, loans are typically illiquid and infrequently valued, and funds are not subject to bank capital rules.

Did you get it right without looking?

One question tells you little. A timed set on The Global Drivers of Private Credit shows your real accuracy, how long you take and where you lose marks.

Practise The Global Drivers of Private CreditFree diagnostic mock

More The Global Drivers of Private Credit questions