Canada Regulator Reviewing Banks’ Private-Credit Exposures

Canada’s bank regulator is examining lenders’ exposure to hedge funds and private-credit shops — as well as how they transfer risk to those firms — with further inquiries planned.

In a yearly update on the top risks facing the financial system, the Office of the Superintendent of Financial Institutions said supervisory reviews on banks’ exposure to non-bank financial institutions are already underway. Canadian banks have “considerably” increased their exposure to private-capital managers and their portfolio companies in recent years, the regulator said Tuesday.

The opaque and leveraged nature of private credit firms can mask structural weaknesses, as well as ...