How risky is the growth in US private credit?
By AFP
October 25, 2025
Image: — © GETTY IMAGES NORTH AMERICA/AFP/File JUSTIN SULLIVAN
John BIERS
The recent bankruptcies of US companies First Brands and Tricolor have focused attention on risks associated with the growth in the private credit market, or lending outside traditional banks.
Bank of England Governor Andrew Bailey told a parliamentary panel this week that it was too soon to know whether the problem was isolated to those two firms or the “canary in the coal mine” to a 2008-scale financial crisis.
JPMorgan Chase Chief Executive picked a different metaphor when discussing Tricolor, which cost the giant US lender $170 million.
“When you see one cockroach, there are probably more,” Jamie Dimon said earlier this month, adding that his firm was scouring its loan book for other potential problems.
– What is the private credit market and why has it grown? –
Estimating the exact size of the private credit market is difficult because of opacity in the financial system and differences in what is included in the category.
But broadly speaking, nonbank finance has grown rapidly as conventional banks have backed off from some lending in response to regulations designed to limit risk.
Banks have something of a symbiotic relationship with nonbank financial institutions (NBFIs), which are also competitors.
Bank lending to NBFIs has more than doubled since 2019 to more than $1 trillion at the end of 2024, according to an S&P Global report from February that described the trend as a source of “risks and rewards.”
As the system has evolved, “you have the non-bank that lends to the consumer and the bank that lends to the non-bank,” said Brendan Browne, a credit analyst S&P Global.
This structure means banks don’t have to hold as much emergency capital but leaves them more in the dark about the ultimate recipient of the funds.
– Why are markets suddenly worried? –
The rising importance of NBFIs has been on the radar of policy makers, including the Federal Reserve, which included a scenario of “rapid deterioration” in NBFI asset quality in the most recent stress tests.
Total bank loan losses would be around $490 billion, according to the Fed, which concluded in June that large banks were “well-positioned to withstand significant” NBFI stresses.
However, anxiety about the sector rose following bank losses from First Brands, a US auto supply company and Tricolor, a subprime auto lender. Both cases involve alleged fraud.
The worry is that an economic downturn could bring to the surface more widespread problems with ill-advised lending made in recent years, especially after pandemic-era central bank policies flushed financial markets with liquidity.
– Will this blow up into a full-blown financial crisis? –
It’s too early to say, but the reaction to recent bank earnings suggests markets view the issue as an item to watch, rather than an area of impending doom.
A group of midsized banks saw their share prices tumble on October 16 after Zions Bancorp disclosed that it was pursuing litigation with a borrower over alleged fraud and would take a $50 million hit. But bank shares recovered the next day after multiple regional banks reported clean results.
So far the problem appears to be “some one-off bad apples,” said Stuart Plesser, an analyst at S&P Global, adding that in general bank credit quality was “good” in the most recent batch of results.
But Plesser said the recent cases point to the need to tighten terms, given instances where the same collateral was promised to multiple lenders.
Another key wildcard is the extent that credit quality deteriorates if the job market slows significantly.
Given the rapid growth in lending to NBFIs, “there is likely to be a wobble at some point,” Lazard Chief Executive Peter Orszag said this week on CNBC. “I just don’t think that’s what we’re experiencing today.”
By AFP
October 25, 2025
Image: — © GETTY IMAGES NORTH AMERICA/AFP/File JUSTIN SULLIVAN
John BIERS
The recent bankruptcies of US companies First Brands and Tricolor have focused attention on risks associated with the growth in the private credit market, or lending outside traditional banks.
Bank of England Governor Andrew Bailey told a parliamentary panel this week that it was too soon to know whether the problem was isolated to those two firms or the “canary in the coal mine” to a 2008-scale financial crisis.
JPMorgan Chase Chief Executive picked a different metaphor when discussing Tricolor, which cost the giant US lender $170 million.
“When you see one cockroach, there are probably more,” Jamie Dimon said earlier this month, adding that his firm was scouring its loan book for other potential problems.
– What is the private credit market and why has it grown? –
Estimating the exact size of the private credit market is difficult because of opacity in the financial system and differences in what is included in the category.
But broadly speaking, nonbank finance has grown rapidly as conventional banks have backed off from some lending in response to regulations designed to limit risk.
Banks have something of a symbiotic relationship with nonbank financial institutions (NBFIs), which are also competitors.
Bank lending to NBFIs has more than doubled since 2019 to more than $1 trillion at the end of 2024, according to an S&P Global report from February that described the trend as a source of “risks and rewards.”
As the system has evolved, “you have the non-bank that lends to the consumer and the bank that lends to the non-bank,” said Brendan Browne, a credit analyst S&P Global.
This structure means banks don’t have to hold as much emergency capital but leaves them more in the dark about the ultimate recipient of the funds.
– Why are markets suddenly worried? –
The rising importance of NBFIs has been on the radar of policy makers, including the Federal Reserve, which included a scenario of “rapid deterioration” in NBFI asset quality in the most recent stress tests.
Total bank loan losses would be around $490 billion, according to the Fed, which concluded in June that large banks were “well-positioned to withstand significant” NBFI stresses.
However, anxiety about the sector rose following bank losses from First Brands, a US auto supply company and Tricolor, a subprime auto lender. Both cases involve alleged fraud.
The worry is that an economic downturn could bring to the surface more widespread problems with ill-advised lending made in recent years, especially after pandemic-era central bank policies flushed financial markets with liquidity.
– Will this blow up into a full-blown financial crisis? –
It’s too early to say, but the reaction to recent bank earnings suggests markets view the issue as an item to watch, rather than an area of impending doom.
A group of midsized banks saw their share prices tumble on October 16 after Zions Bancorp disclosed that it was pursuing litigation with a borrower over alleged fraud and would take a $50 million hit. But bank shares recovered the next day after multiple regional banks reported clean results.
So far the problem appears to be “some one-off bad apples,” said Stuart Plesser, an analyst at S&P Global, adding that in general bank credit quality was “good” in the most recent batch of results.
But Plesser said the recent cases point to the need to tighten terms, given instances where the same collateral was promised to multiple lenders.
Another key wildcard is the extent that credit quality deteriorates if the job market slows significantly.
Given the rapid growth in lending to NBFIs, “there is likely to be a wobble at some point,” Lazard Chief Executive Peter Orszag said this week on CNBC. “I just don’t think that’s what we’re experiencing today.”
By Paul Wallis
EDITOR AT LARGE
DIGITAL JOURNAL
October 24, 2025
Americans are making tough choices at the grocery store to stretch their budgets for the holiday meal. — © AFP
Pressure on rampaging prices is inevitable during a high cost-of-living crisis. The no-brainer solution is to lower prices to bearable levels. It’s called deflation. That’s not happening, and “liquidity drainage” is producing a money desert worldwide.
If you read the Investopedia definition of economic deflation, which is remarkably clear, it’s also a hoot in some ways.
Some quotes and paraphrases from that definition are required here:
Deflation is characterized by a general decline in prices, which increases the purchasing power of money but can harm borrowers and financial markets.
“… can harm financial markets?” You mean those lotus lands of endless charm and obsessive social responsibility? How awful.
The definition then goes on to say that Governments and central banks often counter deflation with reducing interest rates and economic stimuli, like increased government spending.
Deflation refers to falling prices of goods and services and is caused by a number of factors, including waning consumption – Copyright AFP/File Jade Gao
Like lower government spending doesn’t run a herd of bulls through the fragile economics of everyone who’s not absurdly wealthy. It affects everyone, particularly the business sector. It also hits government contracts like defence, infrastructure, and other big words for infantile intellects.
If this all looks strangely familiar, it should, and so it is. The key point here is a total lack of ideas. A formulaic situation produces a formulaic response. The disasters create disasters in response. Facts have no role in these responses.
For example, the global housing problem:
Problem: People have nowhere to live. Prices and greed have driven them out.
Solution: Build more houses in the next ten years with no clear forward big picture planning for future prevention in macro scale.
Fact: The sheer number and scale of vacant housing and convertible buildings could solve the accommodation problem in a year, not a decade.
October 24, 2025
Americans are making tough choices at the grocery store to stretch their budgets for the holiday meal. — © AFP
Pressure on rampaging prices is inevitable during a high cost-of-living crisis. The no-brainer solution is to lower prices to bearable levels. It’s called deflation. That’s not happening, and “liquidity drainage” is producing a money desert worldwide.
If you read the Investopedia definition of economic deflation, which is remarkably clear, it’s also a hoot in some ways.
Some quotes and paraphrases from that definition are required here:
Deflation is characterized by a general decline in prices, which increases the purchasing power of money but can harm borrowers and financial markets.
“… can harm financial markets?” You mean those lotus lands of endless charm and obsessive social responsibility? How awful.
The definition then goes on to say that Governments and central banks often counter deflation with reducing interest rates and economic stimuli, like increased government spending.
Deflation refers to falling prices of goods and services and is caused by a number of factors, including waning consumption – Copyright AFP/File Jade GaoLike lower government spending doesn’t run a herd of bulls through the fragile economics of everyone who’s not absurdly wealthy. It affects everyone, particularly the business sector. It also hits government contracts like defence, infrastructure, and other big words for infantile intellects.
If this all looks strangely familiar, it should, and so it is. The key point here is a total lack of ideas. A formulaic situation produces a formulaic response. The disasters create disasters in response. Facts have no role in these responses.
For example, the global housing problem:
Problem: People have nowhere to live. Prices and greed have driven them out.
Solution: Build more houses in the next ten years with no clear forward big picture planning for future prevention in macro scale.
Fact: The sheer number and scale of vacant housing and convertible buildings could solve the accommodation problem in a year, not a decade.
Houses taken from above. Image by Tim Sandle
On Main Street, where people eat and pay bills, it’s cumulatively worse. Even food prices are being incinerated by added costs. Income is eroded at the same time prices go nuts across the board. There’s not even the pretense of doing anything at all about that.
Global trade dictates what you pay for everything, directly or indirectly. Never mind “Made in Wherever”, costs are hit by every breeze that blows in such an unstable economic structure. Suppliers have to ride the hurricane, and buyers have to try to survive.
On Main Street, where people eat and pay bills, it’s cumulatively worse. Even food prices are being incinerated by added costs. Income is eroded at the same time prices go nuts across the board. There’s not even the pretense of doing anything at all about that.
Global trade dictates what you pay for everything, directly or indirectly. Never mind “Made in Wherever”, costs are hit by every breeze that blows in such an unstable economic structure. Suppliers have to ride the hurricane, and buyers have to try to survive.
The trade war between Beijing and Washington has reignited with export restrictions and threats of additional retaliatory tariffs – Copyright AFP –
The world can’t operate on a car boot sale of outdated trade policies and whimsical politics. For the last 40 years, the holy grail of growth was based on a free market. That market delivered real profitability without the confetti-like big ticket prices.
The real value of money has been progressively deteriorating severely as a result of this Carnival of the Idiots. Productivity was based on real physical production, not innuendo. Now, it’s a talkfest for limited vocabularies.
That’s why the tariff wars are so important. Every single purchase is affected. This is where the pressure for deflation is originating. That pressure isn’t going away anytime soon. Things are so bad that there aren’t really any options but deflation. Wince now, while you can still afford it.
Decreased real income means decreased demand.
Demand for credit can go only so far before people get scared of personal debt.
Increased prices through tariffs dry up demand instantly.
Margins are hit with added sledgehammers on an hourly basis.
Systemic deflation reduces margins, with impacts on the entire supply chain.
This unbelievable mess comes down to China and America. The world’s biggest producer vs the world’s biggest consumer market.
The deflationary pressure for China is enormous. Domestic trade and global trade issues carry a lot of weight, and the demand is for lower prices.
In America, cumulative real-world inflation is the major issue. We’re not talking about CPI; we’re talking about “Everybody’s broke and nobody can afford anything” as the general assessment.
Result, black markets in everything from serial offenders like pharmaceuticals and other major contributors to retirement plans for organized crime.
Either you control prices or they control you.
______________________________________________________________
Disclaimer
The opinions expressed in this Op-Ed are those of the author. They do not purport to reflect the opinions or views of the Digital Journal or its members.
The world can’t operate on a car boot sale of outdated trade policies and whimsical politics. For the last 40 years, the holy grail of growth was based on a free market. That market delivered real profitability without the confetti-like big ticket prices.
The real value of money has been progressively deteriorating severely as a result of this Carnival of the Idiots. Productivity was based on real physical production, not innuendo. Now, it’s a talkfest for limited vocabularies.
That’s why the tariff wars are so important. Every single purchase is affected. This is where the pressure for deflation is originating. That pressure isn’t going away anytime soon. Things are so bad that there aren’t really any options but deflation. Wince now, while you can still afford it.
Decreased real income means decreased demand.
Demand for credit can go only so far before people get scared of personal debt.
Increased prices through tariffs dry up demand instantly.
Margins are hit with added sledgehammers on an hourly basis.
Systemic deflation reduces margins, with impacts on the entire supply chain.
This unbelievable mess comes down to China and America. The world’s biggest producer vs the world’s biggest consumer market.
The deflationary pressure for China is enormous. Domestic trade and global trade issues carry a lot of weight, and the demand is for lower prices.
In America, cumulative real-world inflation is the major issue. We’re not talking about CPI; we’re talking about “Everybody’s broke and nobody can afford anything” as the general assessment.
Result, black markets in everything from serial offenders like pharmaceuticals and other major contributors to retirement plans for organized crime.
Either you control prices or they control you.
______________________________________________________________
Disclaimer
The opinions expressed in this Op-Ed are those of the author. They do not purport to reflect the opinions or views of the Digital Journal or its members.
No comments:
Post a Comment