Private credit has quietly become one of the most influential forces in global finance. With assets approaching $2.5 trillion, the market has expanded well beyond its origins as an alternative financing channel. Today, it plays a structural role in funding corporates, supporting leveraged buyouts, and absorbing risk once held by banks.
Here’s the thing: regulation has not kept pace.
As traditional banks retrench under tighter capital rules, private credit funds have stepped in aggressively. That shift is now drawing the attention of regulators across the US, Europe, and global standard-setting bodies. The result is a fragmented regulatory response, with some areas catching up quickly and others lagging dangerously behind.
The surge in private credit is not happening in isolation. It’s a direct consequence of post-crisis banking reforms that raised capital requirements, constrained balance sheets, and pushed risk outward.
Private lenders filled the gap by offering:
For borrowers, this was attractive. For regulators, it raised red flags.
Unlike banks, private credit funds do not have access to central bank liquidity, are not subject to uniform stress-testing, and often rely on opaque valuation models. As these funds grow larger and more interconnected with the banking system, the risk is no longer idiosyncratic. It’s systemic.
Global institutions such as the IMF, BIS, and the US Federal Reserve have been increasingly vocal about the amplification risks posed by:
What this really means is that private credit is no longer “private” in its impact.
In the US, regulatory scrutiny is intensifying, but indirectly.
The most consequential development is the Basel III Endgame, scheduled to raise bank capital requirements from July 2025. While designed to strengthen banks, the practical effect is further risk migration into private markets.
Banks are responding by:
At the same time, the National Association of Insurance Commissioners (NAIC) is revisiting insurance Risk-Based Capital (RBC) rules for private assets. These insurance companies are major allocators to private credit, and even modest RBC tweaks could materially alter capital flows.
Disclosure requirements are also evolving. Expanded Form PF reporting aims to improve visibility into fund leverage, liquidity, and counterparty exposure. However, this data remains largely inaccessible to the public and fragmented across regulators.
The EU is moving more decisively.
The implementation of AIFMD II introduces stricter controls for loan-originating funds, including:
The European Securities and Markets Authority (ESMA) will play a central role in setting technical standards, particularly for cross-border transactions. For private credit funds operating across jurisdictions, this introduces a new compliance layer that directly affects deal structuring and fund design.
From a Liquidity and Stress-Testing perspective, the EU is clearly catching up. Funds must now demonstrate that redemption terms align with asset liquidity, reducing the risk of forced sales during market stress.
Still, gaps remain. There is no lender-of-last-resort access, and valuation practices continue to vary widely across managers.
In the UK, the Financial Conduct Authority (FCA) has focused on valuation conflicts, particularly where fund managers set asset marks internally.
While these reviews improve governance, they stop short of imposing bank-like prudential rules. Private credit funds remain outside the deposit-taker framework, even as their systemic relevance grows.
Another emerging issue is antitrust risk. As competition intensifies, club deals among large private lenders are becoming more common, raising questions about pricing coordination and market concentration.
Despite regulatory momentum, some of the most critical risks remain under-addressed.
Private credit assets are rarely traded, making market-based pricing impossible. Valuations rely on internal models, assumptions about cash flows, and discretionary adjustments.
While regulators are pushing for data standardisation, there are:
This lack of transparency complicates risk assessment for allocators, counterparties, and regulators alike.
Even where liquidity tools exist, they are untested at scale.
Many funds offer quarterly or semi-annual redemptions while holding long-dated, illiquid loans. Without mandated stress-testing or central bank access, a broad redemption wave could force asset sales at distressed prices.
This is where Liquidity and Stress-Testing frameworks remain incomplete, particularly outside the EU.
Leverage is embedded throughout the private credit ecosystem:
Insurance RBC tweaks and AIFMD II leverage caps address parts of the issue, but there are still no comprehensive systemic leverage limits.
High fund leverage, combined with aggressive underwriting driven by competition, increases default risk in a downturn. Yet stress-testing and disclosure norms remain voluntary in most jurisdictions.
Regulation, even when indirect, reshapes behavior.
Across Global Banking Markets, lenders are adapting deal documentation to manage uncertainty. Common trends include:
Borrowers, aware of potential funding disruptions, are negotiating:
Due diligence standards are tightening, particularly around leverage, covenant headroom, and intercreditor arrangements. Expect more conservative structures in mid-market deals through 2026, even as competition keeps large-cap borrower leverage elevated.
Some areas are clearly advancing:
Others remain stubbornly behind:
This uneven progress creates regulatory arbitrage and complicates cross-border transactions, especially for globally active funds and banks.
Private credit is no longer operating at the margins. It is deeply embedded in the global financial system, shaping credit availability, pricing, and risk distribution.
For professionals in Global Banking Markets, the implications are clear:
The next phase will not be about suppressing private credit growth. It will be about integrating it into a coherent financial stability framework without stifling innovation.
That balance is still a work in progress.
At Global Banking Markets, we work at the intersection of regulation, capital, and market structure. As private credit evolves, so do the risks and opportunities across banking, insurance, and institutional finance.
Our teams help clients: