Should we worry about private credit?

The rise of private credit and its potential impact on financial stability is examined. Private credit, which involves lending to companies outside traditional banks and public markets, has grown to a $2 trillion global market. This growth has been fueled by banks pulling back from lending due to regulatory reasons and balance sheet issues, allowing private credit firms to gain market share. The IMF is concerned about data gaps and the potential for private credit risks to spread throughout the financial system, especially with the involvement of pension funds and insurance companies. While private credit showed resilience during the COVID-19 crisis, increased competition between banks and private credit firms may lead to aggressive lending and watered-down loan protections.