Warren Demands Private Credit Stress Test After Big Bankruptcies

Senators Elizabeth Warren and Jack Reed are urging US banking regulators to run a formal “stress test” of banks’ exposure to the rapidly growing private credit market after a string of high‑profile bankruptcies, including Tricolor Holdings and First Brands Group.​

What Warren Is Asking For

Warren and Reed sent a letter to the Federal Reserve and FDIC pressing them to push Treasury Secretary Scott Bessent to conduct a dedicated stress assessment of private credit. They want the test to examine the size, interconnectedness, and risk profile of the private credit market, and how losses there could hit large banks’ balance sheets.​

Why Now: Recent Bankruptcies

The demand follows collapses at Tricolor Holdings, a subprime auto lender, and First Brands Group, an auto‑parts supplier that filed for bankruptcy with roughly $10 billion in debt and is under investigation for missing funds. These cases involved alleged fraud and double‑pledging of collateral, and they triggered sizable losses at major lenders like JPMorgan, UBS, and Jefferies and helped wipe out tens of billions in US bank market value during a brief panic.​

Concerns About Private Credit

The private credit market is estimated around the low‑trillion‑dollar range in the US and has grown quickly as non‑bank lenders have taken share from traditional banks. Warren has warned that the market’s opacity, leverage, and ties to banks, insurers, and private equity funds create potential systemic risks if multiple large borrowers fail at once.​

What The Stress Test Would Do

The senators want regulators to map bank lending to private credit funds and portfolio companies, estimate loss scenarios, and identify which institutions would be most vulnerable in a downturn or fraud shock. Some reports indicate they are focused on banks above roughly the $50 billion asset threshold, mirroring systemic‑risk frameworks used for more traditional stress testing.​

Broader Context

The call builds on Warren’s earlier push for the Financial Stability Oversight Council to design private‑credit stress tests and to investigate whether ratings agencies are giving overly generous grades to private credit products. At the same time, several market analyses argue that the Tricolor and First Brands failures look more like isolated fraud‑driven events than evidence of broad private‑credit collapse, though they acknowledge the episode exposed vulnerabilities and data gaps.​