The Bank of England is reportedly casting a regulatory eye over Barclays' handling of loans tied to the private credit sector - that increasingly popular corner of finance where everyone is having a lovely time until someone isn't. According to the Financial Times, the Prudential Regulation Authority (PRA), the Bank's regulatory arm, began reviewing the matter this year after concerns were raised by a Barclays insider, which is never the sentence you want opening a story about your risk controls.

The concerns centered on how Barclays logged the derivatives - known as total return swaps, financial contracts that track the performance of an underlying asset - used to finance the loans it issues to private credit firms. Those swaps are said to have been recorded in the wrong portfolio, which had the handy side effect of making them look less risky than they actually were. In banking, that is roughly the equivalent of filing your petrol receipts under 'stationery' and hoping the taxman is having a busy week.

The implication, per the report, is that the bank may not have been holding enough capital to cover potential losses - and that the arrangement could have flattered its profitability. Barclays is said to have built up billions of dollars' worth of exposure to private credit loans using derivatives, according to sources cited by the FT.

Barclays, for its part, is having none of it. "Barclays' treatment of total return swaps is consistent with accounting and regulatory capital requirements," the bank said, adding that it followed capital rules when deciding where to log certain assets. "Those conditions were met and supported by appropriate governance internally and by external advisers," it insisted. The bank put its total exposure to the private credit sector at about £15bn, with the relevant derivatives accounting for £300m of that total - a figure that is either reassuringly small or precisely the sort of detail regulators enjoy reading twice.

Markets, as markets do, reacted with their customary calm: shares in Barclays fell 3.5% on Monday, making it the second-biggest faller on the FTSE 100 amid a wider sell-off in the banking sector. The bank reports its latest financial results on Thursday, which should be a lovely opportunity to discuss all of this at length.

The timing is awkward in at least one additional direction. The review could prove uncomfortable for the new PRA boss, Katharine Braddick, who spent six years as Barclays' head of strategic policy and senior adviser to its chief executive before taking over the bank regulator this spring. The Bank of England said Braddick is recused from all matters relating to Barclays until the end of 2026 - a cooling-off period that suggests someone in Threadneedle Street has heard of the concept of appearances.

Last year, Barclays' chief executive, CS Venkatakrishnan, insisted the bank had the right controls in place to manage its exposure to private credit, an industry where critics worry lending standards have slipped. Private credit firms - a core part of the shadow banking sector - use investor money to fund loans to companies rather than relying on customer loans or deposits, and face less regulation as a result. Traditional banks, anxious not to miss a booming market, started lending directly to private credit firms or their funds, and to companies that simultaneously borrowed from private credit firms; a growing number have also partnered with asset managers on private credit deals.

Critics worry private credit players have been too lenient about who they lend to, and regulators have warned that any fallout could destabilise the traditional banks now thoroughly intertwined with the industry. Growing anxieties triggered a multibillion-pound surge in withdrawals from some private credit funds earlier this year, forcing some to cap how much clients could pull out.

The industry has been trying to recover after some high-profile company failures, including two private credit-backed US automotive companies, Tricolor and First Brands, last year, both hit by fraud allegations. That was followed by the mortgage lender Market Financial Solutions (MFS), which collapsed in February amid allegations of fraud. Barclays was among the banks that suffered losses on the back of Tricolor's collapse, alongside JP Morgan, and also took a £228m hit after the MFS failure.

So to recap: the derivatives were logged somewhere convenient, the regulator is looking into it, the regulator's new boss used to work at the bank, and the bank says everything was done by the book. The book, presumably, being the one where the swaps were filed.