Citigroup boss warns of insurers piling into private credit
Citigroup chief executive Jane Fraser has warned of arbitrage between banking and insurance, as insurers plough money into private debt.
According to Bloomberg, Fraser is planning to discuss the issue at an upcoming committee meeting of Citigroup’s board.
Talking to an event hosted by the Basel Committee on Banking Supervision, she highlighted that there has been a notable rise in the use of insurance vehicles and the long-term capital they provide to invest in private debt.
Read more: BoE warns competition from private credit funds may result in lower quality products
The $1.7tn (£1.4tn) private credit industry is booming as a result of regulators, including the Basel Committee which oversees 45 banking members, restricting more risky bank lending.
Now that borrowers are able to access loans and other forms of debt from private investors, the concern is that the risk still exists, just outside of the banking sector.
“The piece I’ve noticed a lot of late that does worry me is there’s an arbitrage between banking and insurance that is going on,” Fraser said. “We all need to keep an eye on that one.”
Read more: Private markets become ‘a mainstay’ of insurance portfolios
“We’re all aware of the risks,” Standard Chartered chief executive Bill Winters is reported to have said at the same event. “Like always, good things go too far and then correct. And the job of us as banks and the job of you as supervisors is to make sure we don’t get carried out when the tide goes away.”
Yesterday’s meeting of the Basel Committee comes as regulators around the world prepare to implement Basel III, which will force banks to hold more capital.
Winters told Bloomberg today that the varied ways in which the new rules are being rolled out makes it difficult for banks to continue operating in different jurisdictions.
“Global banks will become extinct if we don’t get an element of harmonisation,” he said.
Read more: Insurers predict higher returns from private credit than private equity