Private Credit Should Be Welcomed — and Watched

Since the financial crisis of 2008, policymakers have been cracking down on leverage at banks. As a result, banks cut back on any lending that didn’t seem profitable enough if it wasn’t juiced by leverage.

The result was a big opportunity for fund managers: a private credit market now estimated to be worth some $1.6 trillion and forecast to double in the next five years. Bankers and bond investors have started to complain and to issue warnings about looming risks. Policymakers are asking questions.

Regulators should resist pleas to impose new rules on private credit, but they should seek ways to track its evolution and monitor potential risks.

Private Debt Is Growing Fast

Private credit funds pose less of a threat to financial stability than banks because, unlike depositors, their investors — largely pension funds, insurance companies and wealthy families — don’t expect to be able to withdraw their money whenever they want. They can also withstand losses if some of the loans default. Bank depositors, as demonstrated earlier this year, aren’t prepared to do the same.