People are scared of 'shadow banks,' but these private credit funds actually have six times more cash on hand than regular banks and almost never crash.
There is a persistent narrative that the growth of private lending is a systemic ticking time bomb similar to the 2008 crisis. However, data shows these funds are structured much more conservatively than banks, with way more equity and a lack of the maturity mismatches that cause financial panics.
Private Credit, Balance Sheets and Financial Stability
SSRN · 6456977
We document new evidence on the capitalization, funding structure, and performance of private credit funds using comprehensive fund- and asset-level data covering most of the industry. Private credit funds are highly capitalized, with equity typically accounting for 65–80% of total assets—more than six times the capitalization of U.S. banks, where equity represents about 10%. Debt usage is moderate and largely reflects bank credit lines used for liquidity management. Fund lives average 10–12 yea