Stress and Strain from NBFIs to Banks

Do the recent stresses in the NBFI space—notably the bankruptcies of Tricolor and First Brands, and the decision of Blue Owl Capital Corp II (OBDC II) to end its redemption program and return capital through a wind-down of the fund—create distress for banks? The general sentiment is that the recent stresses are unlikely to amount to systemic concerns, although it does not mean there might not be “some stress and strain” for banks and that policymakers are “watching carefully” for exposure across banks. In a series of previous posts, we showed that shocks to nonbank financial institutions (NBFIs) directly impact banks that have exposures to NBFIs. In this post, we show that bank stocks have been directly impacted by NBFIs yet again. In short, NBFI troubles do result in “stress and strain” for banks.