The growth in private credit over the past two decades is an intended outcome of the post-financial crisis regulatory reforms. Regulators had an express intent to shift the provision of credit away from the banking sector to unlevered institutions. Therefore, the increased share of private credit in the financial system should generally be regarded as a desired outcome rather than a cause for alarm.
However, the growth of private credit does come with its challenges. When a part of the financial system grows rapidly, invariably there are excesses. When some participants are late to the party, there is always the risk that they are buying the fish John West rejects.
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