Private credit and shadow banking

What this actually is

Lending to companies by investment funds rather than banks. It has grown to well over a trillion dollars because banks face capital rules that funds do not.

Why it matters to a person

The loans are not traded, so they are valued by the funds that own them rather than by a market. That means stress appears late and all at once. Increasingly these loans sit inside annuities and retirement accounts, which is how a corporate credit cycle reaches an ordinary household's pension.

For scale

Essentially did not exist at scale before 2010. Has therefore never been tested by a full recession — the strongest argument that it is fine, and the strongest argument that nobody knows.

How to read a release

The mechanism

Two trillion dollars of lending outside bank regulation; opaque marks mean stress shows late and all at once.

What to watch: BDC marks; Fed Financial Stability Report. Arrives quarterly; the effect typically lasts years. Impact tier 2 — Directional: Moves the index for days or weeks. Scheduled data releases, policy decisions, global spillovers, and the prices of money and energy. This is the tier most professional attention is spent on.

Primary source — federalreserve.gov ↗