Barclays has drawn scrutiny from the Bank of England over claims that its traders understated the risks of opaque private credit loans.
The Bank's watchdog, the Prudential Regulation Authority (PRA), reportedly received a complaint this year citing concerns that Barclays was breaching City rules over loans from so-called shadow banks .
The complaint is said to have focused on how Barclays treated a series of complex derivatives that were tied to private credit loans.
Regulated lenders have become deeply tied to private credit, which has mushroomed into a $2tn (£1.5tn) industry in recent years.
Strict capital rules mean banks must set aside some of their money in a "buffer" for loans they make in case things go wrong.
Shadow banks do not operate under the same constraints and can therefore make riskier loans.
Meanwhile, conventional banks have provided billions of pounds of financing to the sector through a variety of complex products.
Depending on how difficult it is to sell an asset, banks either place them in their trading book or banking book.
The banking book is for assets that are less liquid and requires the bank to post more capital to protect against any losses.
However, Barclays placed the underlying private credit loans tied to the derivatives in its trading book, despite PRA rules restricting the practice, the Financial Times reported.
Traders at the bank are said to have argued that it was fair to put the loans in the trading book because they had matched their exposure with another counterparty.
Barclays said its treatment of the trades was consistent with accounting and regulatory capital requirements and that the vast majority of its £15bn private credit exposure is held in its banking book.
A spokesman added: "Under capital rules, we are required to meet certain conditions to classify treatment as trading book. Those conditions were met and supported by appropriate governance internally and by external advisers."
Shares in Barclays fell more than 3pc following the report.
The PRA last year warned banks about the practice in relation to a similar trade that banks often carry out.
It said at the time: "We are concerned that, in certain areas, not all banks are demonstrating a sufficiently thorough assessment of collateral eligibility.
"We have identified that for certain financing portfolios, banks have adopted an imprudent approach associated with the recognition of collateral for regulatory capital purposes, resulting in a potential undercapitalisation of the risks."
The PRA has become increasingly interested in how a downturn in the shadow banking sector might ricochet into other areas of the financial system. In December last year, it launched the world's first stress test of the private market sector.
Some of the biggest private equity and credit firms, including Apollo, Ares, Blackstone, Carlyle and KKR, have all agreed to participate in the exercise, with results due to be published in 2027.
The Bank declined to comment.
