The recent failures of two U.S. companies, First Brands and Tricolor, have highlighted the increasing significance of private credit in the global financial landscape. These collapses have resulted in substantial losses for traditional banks and have raised questions about lending practices within the shadow banking sector. Concerns are growing regarding the health of U.S. regional banks, particularly due to lending standards within private credit.
Private credit, which began in the 1980s, provides loans to businesses through funds raised from private investors rather than customer deposits like traditional banks. This sector has broadened its reach since the 2008 financial crisis, when regulatory measures forced banks to hold more capital, creating opportunities for private credit firms. By 2024, the private credit industry had amassed approximately $3 trillion in assets and is projected to grow to $4.5 trillion by 2030, though this remains modest compared to the overall banking industry’s $188.7 trillion in assets.
While proponents of private credit argue that it offers quicker access to financing for businesses and diversified portfolios for investors, critics cite concerns about regulatory discrepancies. Private credit firms do not have the same capital requirements as banks, potentially increasing the risk of defaults. Recent incidents involving First Brands and Tricolor have brought renewed attention to these concerns, especially as major banks like JP Morgan and Jefferies reported substantial financial exposure to these failing firms.
Global regulators, including the IMF, are increasingly wary of the interconnectedness between traditional banks and non-bank financial intermediaries (NBFIs). They warn that adverse developments in the private credit sector could affect banks’ capital ratios. Meanwhile, while everyday consumers may not be directly at risk, significant defaults in private credit could impact broader financial stability, given that institutional investors, such as pension funds, are increasingly involved in this space.
Regulatory action on private credit seems unlikely, particularly given its dominance by U.S. firms and resistance to increased regulation. The current trend may lead to further debates on loosening restrictions on traditional banks rather than imposing stricter rules on private credit firms.
Source: https://www.theguardian.com/business/2025/oct/18/what-is-private-credit-us-first-brands-tricolor-banks