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The profile of private credit is more conservative than many critics acknowledge. The business development companies designed to offer retail investors access to private credit typically have a leverage ratio of about two times or less — much less than big banks (although much of their debt is from deposits).
These funds do not rely on federal deposit insurance or the Federal Reserve’s discount window. This means losses are largely absorbed by sophisticated institutional investors that understand the long-term risk profiles rather than creating taxpayer exposure. Also, much of private credit is in locked-up fund structures and not funded by “on-demand” bank deposits; therefore, it is less susceptible to a ‘run’ in the traditional banking sense. – Roger Ferguson, Former Federal Reserve Vice Chair, in the Financial Times
Private Credit Is Key To Keep Main Street Moving
By Roger Ferguson
Financial Times
March 16, 2026
The debate over private credit has grown very loud in recent weeks. Much of the commentary has focused on the perceived systemic risks, the speed of the sector’s growth and comparisons with 2008.
But that obscures a more straightforward question: who is financing the middle-market businesses that employ 48mn Americans and represent roughly a third of private-sector GDP, when big banks have been more constrained to lend to them due to regulatory and commercial reasons.
The answer has been increasingly private credit. While some of the recent sector worries have focused on the sharp growth in lending to software-as-a-service companies and more asset-light companies, the more traditional private credit borrower is something like a midsized manufacturer in Ohio or a healthcare services firm that doesn’t have access to investment-grade public debt markets. These are businesses that provide jobs that people rely on to make ends meet. Private credit helps sustain this job creation and economic growth.
Of course, banks remain essential for deposit-taking, payment infrastructure and shorter-duration lending. But post-financial-crisis regulation deliberately constrained their risk appetite for lending to middle-market companies. Private credit helped fill those gaps, though it’s clear the economy requires both sources of financing to operate efficiently. Any response from policymakers to recent concerns should take that into account.
The profile of private credit is more conservative than many critics acknowledge. The business development companies designed to offer retail investors access to private credit typically have a leverage ratio of about two times or less — much less than big banks (although much of their debt is from deposits).
These funds do not rely on federal deposit insurance or the Federal Reserve’s discount window. This means losses are largely absorbed by sophisticated institutional investors that understand the long-term risk profiles rather than creating taxpayer exposure. Also, much of private credit is in locked-up fund structures and not funded by “on-demand” bank deposits; therefore, it is less susceptible to a “run” in the traditional banking sense.
It is worth distinguishing here between the private direct lending funds catered to institutions — typically multiyear, locked-up commitments from pension funds and endowments — and BDCs. The latter include built-in mechanisms that govern how redemption requests are managed when they exceed normal thresholds, precisely the kind of structural guardrails that prevent disorderly unwinding. In neither case does the underlying risk migrate to the broader financial system in the way bank failures do: there is no deposit insurance on the line, no access to the Federal Reserve discount window fund facility, and no taxpayer backstop.
Indeed, the Fed’s own 2025 stress tests found that even under severe recession scenarios, nonbank financial institution exposures, including private credit, did not threaten banking system stability. The Office of Financial Research reached a similar conclusion: given the leverage profile of private credit funds relative to their total obligations, broad systemic contagion is unlikely.
While private credit has grown significantly, its size should be understood in proportion to the broader credit system in which it operates. Across the full spectrum of US credit markets, private credit has only a modest share of total credit outstanding.
And private credit has tended to be most consequential precisely when other types of financing were most needed, stepping in as bank lending contracted during the 2008 financial crisis and again through the Covid pandemic shock.
When there is a sudden macroeconomic panic, the price of public equity or debt can quickly plunge if investors begin selling. Because many private credit funds are long-term and not publicly traded, businesses and portfolios are shielded from the sentiment-driven volatility of public markets.
The financial system’s resilience has never been a product of uniformity. It has come from maintaining a diversity of capital sources capable of serving different borrowers under different conditions. In that sense, private credit plays a key role in financing the next hire, the equipment upgrade, the expansion into a new market. It helps keep Main Street moving.
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