> this isn't that big of a number in the larger scale of US banking

It's not. It's just that we're seeing potentially 10% losses on the portfolio level [1], which could imply up to–up to!–5% losses to the banks' loans to those lenders.

Again, tens of billions of dollars of losses are totally absorbable. But Morgan Stanley's stock price took a hit when it gated one of these funds [2]. And some banks (Deutsche Bank, somehow, fucking again, Deutsche Bank) have small ($12n) but concentrated portfolios where a single wipeout could materially impair their ~$80bn of risk-weighted assets.

[1] https://www.reuters.com/business/us-private-credit-defaults-...

[2] https://www.wsj.com/livecoverage/stock-market-today-dow-sp-5...

Washington Mutual had $307 billion in assets, and one credit downgrade and a bank run of $16 billion in September 2008 was enough to get them shut down.

These private credit numbers are estimates provided by Moody's, who were famously clueless about the scale of mortgage bond risk even as they stamped them all with a AAA rating.

Yeah but don’t major problems usually take the form of debt chains being forcibly unwound? Like default happens somewhere, expected money doesn’t land, that next entity who was receiving the debt money that defaulted defaults on something because now they can’t pay, expected debt payment money from them doesn’t land, that next entity etc.

So I think it’s not about how much of the debt is this, it would be about how intertwined it is with other things.

I’m not claiming it’s major btw, I’m just clarifying that in my understanding it could be a small percent but still end up causing default cascades, or it could be a large percent and not, depending on the debt graph.

Someone else owns all the other credit. This is the 1st domino.

The liquidity challenges of a $1.2T shock to the economy is meaningful, because it has knock on effects on equity as well.

When private credit (which is propping up private valuation) falls, private equity also falls and then everyone realizes that everyone else has been swimming naked.

Update: original comment should be. 300B/1.2T*(10% of bank funds) = 2.5%. If I'm reading comment correct. Also I believe the whole private credit ecosystem is about 1T.

In a catastrophic scenario: if the whole asset class went to 0 (on the banks asset sheet they would lose 2.5% - absorbable pain assuming its not leveraged through creative financial mechanisms).

I would wager that risk is more concentrated on certain institutions instead of across the board so acute pain likely.

If there are credit default swaps involved anywhere, this could amplify the pain in the economy.

Off by an order of magnitude.