Brookings Releases Report on Private Credit, Financial Stability Risk

The Brookings Institute released a commentary article titled, “What is private credit? Does it pose financial stability risks?” The article highlights the differences between private credit and private equity, discusses the drastic change in the size of global credit offerings, and engages in a discussion around the potential risks private credit may pose to the overall financial system. The article notes a study from Prequin that follows the growth of private credit from the 2008 Global Financial Crisis until early 2023, Prequin found that “private credit grew globally from approximately $375 billion in assets under management globally to over $1.6 trillion by March 2023.” According to data from the Federal Reserve comparing more traditional sources of lending, “non-financial business debt in the U.S. exceeds $21 trillion… U.S. banks had about $2.7 trillion in commercial and industrial loans at year-end 2023.” With regard to the threat to financial stability, the Federal Reserve’s 2023 Financial Stability Report noted the risks from private credit funds are low due, in part, to the lock-up period for those funds. However, the article notes “One concern that regulators cite is the lack of transparency among private credit funds, which are required to disclose less about their performance, loans, and investors (both to regulators and the public) than banks.”

Click here to read the Brookings report on private credit and financial stability risk.