Global Macro Research
Asset pricesWould a private credit collapse bring down the economy?
Non-bank lending to companies has expanded rapidly into a multi-trillion-dollar asset class. This has led to increasing regulatory scrutiny amid worries that the sector could pose a systemic threat to the financial system. However, a Global Financial Crisis-style collapse is unlikely.
Author
Jai Tyagi
Graduate Analyst
Duration: 1 Min
Date: 24 Apr 2026
Key Takeaways
- Private credit — non-bank, privately negotiated lending by specialist funds — is a rapidly growing asset class. As with past episodes of financial innovation, this has raised concerns about asset quality and potential systemic risks to the economy.
- Asset price shocks become systemic when they spread across balance sheets, get amplified by leverage and liquidity mismatches, and break something the real economy depends on.
- Private credit may have some of these features. There are (often opaque) interlinkages between private credit funds, banks, and other key financial institutions. Private credit borrowers may be especially exposed to potential AI disruption. And a rising share of funds are of a semi-liquid nature, increasing run risk.
- However, most private credit funds use little or no leverage, rely on long-term capital, avoid deposit funding, and are somewhat removed from core financial infrastructure such as bank payment rails. Indeed, unlike during the housing bubble, aggregate US whole-economy credit data haven’t shown a rapid increase due to private credit.
- So, while any rise in private credit defaults and losses could be a headwind to the economy, it is not likely to cause a systemic crisis.
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