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.
March 25, 2026
Original Paper
Private Credit, Balance Sheets and Financial Stability
SSRN · 6456977
The Takeaway
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.
From the abstract
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