alt Hacker NewsReason this number caught my eye: last year the Fed's stress tests found "loss rates from [non-bank financial institution] exposures (i.e., the percentage of loans that are uncollectible) were estimated at 7%, under a severe recession in scenario one" [1].
That's the scenario in which unemployment goes to 10%, home prices crash by 33%, the stock market halves and Treasuries trade at zero percent yield [2].
[1] https://www.mfaalts.org/industry-research/2025-fed-stress-te...
[2] https://www.federalreserve.gov/publications/2025-june-dodd-f...
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What's odd is according to the article, this index estimated an ~8% default rate in 2024. So maybe the stress test was measuring something different? It's weird to think the stress test would find a lower loss rate during a severe recession than in the most recent year with data available.
The categorization the Fed uses for NBFI is broader than private credit. E.g. if a hedge fund gives a loan to a private company, that's not private credit because hedge funds seem to have their own category. And lending backed by securities is also in a different category, it seems.
So I guess the Fed expects these other kinds of lending to be safer than private credit?