Bank of England Scrutinizes Barclays Over Private Credit Risk Booking

The Bank of England is examining whether traders at Barclays misrepresented illiquid private credit loans in a way that understated their risk, after an insider at the British lender raised concerns. The review by the central bank's Prudential Regulation Authority concerns how the bank recorded derivatives used to finance private credit loans, and it became public on Monday, October 19, 2026.

What the complaint alleges

The complaint, received earlier this year, centered on Barclays' allocation of total return swaps that reference illiquid private credit loans to its trading book. Those swaps are derivatives that can let a bank finance loans for private credit funds while passing the economic performance to a client in exchange for a fee. The complaint also alleged that the way the bank handled the deals breached the PRA's rules, which restrict banks from assigning derivatives backed by illiquid collateral to the trading book unless they can supply enough evidence to justify the treatment.

Banks place assets in either their banking book or their trading book, and the choice helps determine how much capital must be set aside to cover potential losses. The banking book holds loans that are harder to sell and attracts more capital, while the trading book is meant for assets that can be sold easily. Regulators worry that classifying derivatives linked to illiquid loans as easier-to-trade investments could understate the risk of the underlying exposure and reduce the money required to cover losses.

Why the booking decision matters

People familiar with Barclays' positions said the bank has built up billions of dollars of exposure to private credit loans using the derivatives, and that its traders argued the exposure should be treated as a traded position because it was hedged through a matching swap with another counterparty, despite being linked to illiquid private credit loans. Private capital loans are normally considered illiquid because they cannot be traded and lack daily mark-to-market trading. The PRA warned banks in a letter to finance directors last year against seeking to game capital rules by repackaging illiquid assets as tradeable ones. The regulator wrote that for certain financing portfolios banks had adopted an imprudent approach to recognizing collateral for regulatory capital purposes, resulting in a potential undercapitalization of the risks.

The scrutiny lands on a corner of finance where financial regulation and accounting judgment meet. The treatment of derivatives tied to private credit is a technical decision made inside treasury, risk and reporting teams, but its consequences reach capital planning, investor disclosure and the credibility of a bank's balance sheet. Institutions that finance private credit funds increasingly rely on structures that shift economic performance to clients, which puts pressure on the controls that decide where each exposure sits.

What happens next

Barclays said in a statement that it takes seriously its regulatory obligations in the markets where it operates, and it declined to comment further on its interactions with the regulator. The Bank of England did not immediately respond to a request for comment on the report. Barclays shares fell 2.6 percent to 421.4 pence by 0750 GMT on Monday, while the FTSE 100 index was 0.9 percent lower.

The case is likely to keep attention on how banks document and defend trading book classifications for illiquid collateral, and on whether supervisors demand more evidence before accepting a hedge as proof of tradability. For workers in risk, compliance and regulatory reporting at lenders with large private credit books, the practical focus is the paper trail that links each position to a rule, a justification and a review. Analysts will also watch whether the PRA widens its review beyond a single complaint or issues further guidance to finance chiefs on collateral recognition.