January 20, 2026
Many regulators and policy makers have zeroed in on private credit calling for stress tests for nonbank exposures and grilling ratings agencies on what they believe are “inflated” ratings.
To them, this $1.7 trillion market where private, non-bank lenders step in to meet the borrowing needs of a vast range of small and medium sized businesses is a powder keg of opacity, credit risk, liquidity traps, and interconnectedness, all primed to blow up the financial system. Critics paint private credit as the unregulated sequel to the shadow banking follies of 2008, urging heavy-handed federal interventions, a narrative that has caught fire among some think tanks and regulators.
But a new report by the Office of Financial Research’s (OFR) – and independent arm of the Treasury Department – directly refutes this narrative. In their 2025 Annual Report to Congress. OFR affirms that private credit’s stability risks are low, and its benefits to the real economy are high. As OFR’s report states:
Financial stability vulnerabilities associated with private credit appear low because private lenders are not very leveraged, and most have financing that is locked up for long periods. … Leverage of BDCs [business development companies] and private credit funds is much lower than bank leverage. All but the most extraordinarily large credit losses on private lenders’ portfolios would be borne by their equity holders. The total amount of debt owed by private lenders is also modest relative to the aggregate size of the balance sheets of providers of such debt. Taken together, these facts make it unlikely that distress at private lenders would transmit to the broader financial system.
OFR’s 2025 report is compelling, and its leadership and team are both well-credentialed and non-political. The office, established by Dodd-Frank in 2010 to flag genuine stability threats, operates with a mandate for independence and bipartisanship. Its leadership team embodies that mission. The 2025 report leads with a letter from OFR’s Principal Deputy Director, James Martin, appointed to his post in 2022. Its leadership team also includes Acting Deputy Director Emily Anderson, who helped design and stand up the Consumer Financial Protection Bureau (CFPB) – an organization to protect consumers in the financial marketplace.
Senior staff, and those key analytical and supervisory roles, have worked in financial regulatory roles dating back to Obama-era financial reforms. The report, and its underlying research, are based on pragmatic evidence-based analysis rather than partisan agendas. With these credentials, you can trust OFR when it says private credit’s leverage is low, its funding is “locked up” against runs, and its debt exposures modest relative to creditors’ balance sheets.
The details bear this out. Private lenders’ portfolios aren’t leveraged like banks; losses would first sting equity holders, not ripple outward. Pricing for private credit deals reflects the risks (in 2023, the basis point spreads were 650, double what banks charge) showing these aren’t giveaway loans but instead deals tailored for underserved borrowers. Private credit’s place in the market has proven resilient through rate hikes and slowdowns, and democratized finance.
OFR’s assessment stands in stark contrast to the case presented by critics. Private credit’s low-risk profile, fortified by locked-up capital and prudent pricing, poses no threat to stability, only opportunity for growth. Uninformed and reactionary regulatory crusades will burden market innovation without justification, and proving once again that markets, left to their own devices, deliver adaptability, and prosperity far better than bureaucratic meddling ever could. Policymakers should take note.