Creating a System to Deal with the Systemic Risk in Private Credit

I. Introduction

A. Background

Private credit refers to financing in which non-bank lenders provide loans and other sources of capital to businesses.1 Since the financial crisis of 2008, there has been a surge in the growth of private credit,2 which is expected to continue.3 As it stands, the size of the private credit market at the start of 2024 was approximately $1.5 trillion, and it is estimated to grow to approximately $3 trillion by the end of 2028.4 Due to current trends in partnerships with other financial institutions ranging from banks to broker-dealers,5 private credit’s offerings and client base have expanded.6 Also noteworthy is private credit’s increased collaboration with other private credit firms. These trends have culminated in major banks entering into a litany of different partnership agreements with private credit firms.7 Given private credit’s increased interconnectedness with the broader financial system, many executives and economists have vocalized concerns about risk spreading from private credit to other sectors of the economy and financial system, and vice versa.8 These trends offer regulators an opportunity to consider how or whether the federal government should regulate private credit. It appears that current cooperation efforts between private credit firms and traditional lenders contradict the spirit of the Volcker Rule.9 Hence, evaluating possible approaches to dealing with this sort of risk is necessary, and is the exact type of ex-ante deliberations that should have occurred amongst regulators ahead of the 2008 financial collapse.10

B. Comment Roadmap

This Comment will address the history and development of private credit. It will highlight private credit’s unique advantages, which merit it a distinct and valuable form of alternative investment. Additionally, this Comment will explore recent changes in private credit, such as its increasing interconnectedness with banks and institutional investors, as well as financing arrangements that have blurred the line between private credit and public debt markets. This increased connectivity amplifies the potential for systemic risk, heightening vulnerabilities in the broader financial system.

Systemic risk, the possibility that an event at the individual company level could trigger severe instability or collapse an entire industry or economy, is particularly concerning in the context of private credit.11 For the purposes of this Comment, systemic risk refers to the possibility that clients of private credit firms may be unable to repay their loans, which, due to the growing interrelation of private credit with the broader financial industry, could jeopardize the stability of the larger financial system. To address this issue, this Comment explores potential solutions to mitigate the spread of systemic risk throughout the broader financial system.

Chiefly, this Comment will focus on five potential solutions to the systemic risk of private credit. Together, these remedies form a regulatory “system” designed to manage the inherent risks of private credit and to mitigate their spread to other sectors of the financial system. While not an exhaustive list of potential remedies, these solutions represent the most practical approaches given the interest and capacity of regulators. Implementing even a single one of these proposed solutions could have a profoundly positive impact on mitigating systemic risk and enhancing financial resilience in the face of a potential crisis. Specifically, the solutions below center on enhancing disclosure requirements, strengthening capital and reserve requirements, imposing leverage limitations, restricting certain high-risk investment behaviors, and focusing on covenant drafting in lending negotiations.

To implement these measures effectively, I advocate for altering and expanding existing regulations to reinforce the boundary between private credit and public debt markets. Additionally, I propose introducing new regulations aimed at increasing oversight and closing data gaps to enhance the overall resilience of financial systems.

II. The History and Emergence of Private Credit

A. Origins

Private credit has existed in one capacity or another since the 19th century and predates public bond markets.12 In fact, investment firms and insurance companies, popularized through the efforts of Mr. Robert Fleming, played a significant role in financing the development of railroads in the United States during the 19th century by acting in a private credit capacity.13 But private credit, in its contemporary form, that lends primarily to middle-market firms, emerged in the 1980s.14 Its rise was partly a byproduct of Michael Milken’s creation of the “junk-bond” market and partly due to financial innovation when insurance companies began widely lending their excess premiums directly to businesses to generate returns on excess reserves.15

The “middle market” is a segment of the economy made up of approximately 200,000 U.S. firms with revenues ranging from $10 million to $1 billion.16 Middle-market firms account for roughly one-third of the American economy, but due to their relatively small size, limited sophistication, and lack of diversification—often driven by geographic concentration and narrow operational focus—they are perceived as more risky investments than typical publicly listed companies.17 To provide a frame of reference, many well-known companies fall within the middle market, including health club chains such as Life Time Fitness, audio equipment manufacturers like Sonos, food and snack brands like Utz, and various professional services firms, such as boutique broker-dealers, accounting firms, and law practices.18 For the purposes of this Comment, we will focus on the former group of firms, which are frequently targeted in leveraged buyouts financed with private credit, as the latter group likely contributes to the spread of systemic risk associated with private credit through the advisory role they play in these transactions.19

Private credit’s primary focus on servicing middle-market firms has heightened the sector’s exposure to financial instability and systemic risk. This vulnerability stems from the middle market’s sensitivity to market conditions and the inherent risks of lending to firms with weaker or uncertain credit profiles. As private credit continues to grow and integrate with traditional financial institutions, these dynamics raise concerns about the potential for systemic risk to spread throughout the broader financial system.

Although private credit has a long history, its popularity surged after the financial crisis of 2008. Private Credit’s popularity is due to lawmakers passing the Dodd-Frank Act and engaging in other oversight activities, which overhauled the regulatory environment for financial markets and disincentivized banks from servicing the middle market.20 Notably, the Volcker Rule within Dodd-Frank prohibited banks from using depository funds to engage in certain types of proprietary trading and investing in middle-market funds and securities.21 Further, in 2013, the Federal Reserve and the Federal Deposit Insurance Corporation (“FDIC”) issued Interagency Guidance on Leveraged Lending, outlining lending standards for banks in the middle market.22 In the following years, regulators scrutinized and expressed concerns about banks’ substandard loan writing,23 threatening additional regulation, which further disincentivized banks from serving firms at the middle market level.24

As a result of these regulatory actions, regulators largely precluded banks from purchasing and holding commercial debt, paving the way for the development and mass appeal of private credit as an alternative source of capital.25 As a consequence, in response to a 2023 survey, 78% of asset managers have stated that they already utilize private credit in acquisition financing.26 Moreover, private credit provided financing for 85% of leveraged buyouts in 2024, which is up from 64% in 2019.27 This aligns with a larger trend toward increased investment being poured into alternative markets, particularly private debt and equity, with total alternative investments expected to balloon to $30 trillion by 2029.28 Due to the rapid rise of private credit and its potential to diminish the role traditionally played by capital markets in acquisition and capital formation, these trends warrant heightened regulatory scrutiny.29

B. Changing Regulatory Environment and Recent Events

The regulatory environment that gave rise to the private credit industry is in flux. In 2020, due to pushback from banks and the complexity of how to apply the Volcker rule, the Volcker rule was amended to ease lending restrictions.30 Essentially, banks and other regulated entities faced significant challenges in adhering to the Volcker Rule due to its expansive disclosure and reporting requirements, as well as its unclear and overly broad definitions.31 This ambiguity created substantial uncertainty regarding enforcement and compliance. As it stands, the Volcker Rule is largely ineffective, allowing banks to engage in the same type of illiquid lending to the middle market that characterizes private credit.32 This type of lending is considered illiquid because the loans are offered privately, without the use of public exchanges. As a result, there is no readily accessible market to sell these loans or swiftly convert them into cash when liquidity concerns arise.33

Despite rolling back the Volcker rule’s enforcement, in 2023, regulators proposed Basel III Endgame provisions that would impose additional capital requirements on banks.34 These requirements would not be extended to other types of funds or non-traditional lenders and likely would result in banks reducing their direct lending footprint.35 However, regulators’ focus would not solely be on banks. Effective December 11, 2023, private equity firms are required to file a Form PF to disclose material events that impact their funds, including partner removals and the executions of secondary transactions.36 Complying with Form PF requirements limits anonymity, which has historically been a key benefit of private equity. It is yet to be seen whether these Form PF reporting requirements will be extended to private credit.

These regulatory actions, which alternately hinder and promote banking and private credit activities, have created a financial market where the boundaries between permissible and impermissible lending behavior are increasingly blurred. Furthermore, the cyclical loosening and tightening of regulations affecting the private credit industry highlight regulators’ uncertainty about how to effectively oversee the sector. If these trends persist, they may reflect the ongoing influence of regulatory capture, wherein banks and the broader financial industry pressure agencies to reduce barriers to entry in the private credit market. In response, agencies may eventually institute stricter regulations, often in reaction to a crisis, which are then contested by the industry as overly burdensome and ultimately overturned. This cyclical reform-repression dynamic is likely to continue until regulators clearly define acceptable and unacceptable investment and loan writing behavior.

However, even well-defined, “bright-line” rules are not a guaranteed solution, as demonstrated by the passage and subsequent repeal of the Glass-Steagall Act of 1933.37 Glass-Steagall, passed in response to the Great Depression, prohibited deposit-taking institutions from engaging in investment banking. It was repealed in 1999.38 The repeal removed the barrier between commercial and investment banks commingling funds, a practice that significantly exacerbated the effects of the 2008 financial crisis.39

In addition to an unclear regulatory environment, the spring of 2023 saw a series of high-profile bank failures, including Silicon Valley Bank, Signature Bank, and First Republic Bank.40 These failures, coupled with high-interest rates, led banks to widely decline to extend loans and other sorts of financing to middle-market firms seeking capital.41 Banks reasoned that, due to heightened regulations and small margins on these loans, it was not in their interest to service these types of debtors.42 This reluctance from banks and other traditional lenders to underwrite the middle market increased the demand for private credit and other sources of alternative lending to access capital.

As of 2025, the Trump administration’s stance toward private credit no longer reflects prior administrations’ tepid tolerance of financial arrangements that obfuscate the line between public and private capital. Instead, it represents a full embrace of private capital. In July 2025, a GOP-dominated Congress, passed the President’s flagship and much-anticipated tax cut titled the “Big Beautiful Bill.”43 The resulting increase in the federal deficit associated with the bill’s passage is expected to drive up interest rates, thereby raising borrowing costs,44 including the cost of private credit. Although current political pressures may lead to interest rate cuts notwithstanding sound economic analysis, that possibility is not considered further here.45 Notably, the bill offers interest deductions for auto loans46 while imposing caps on graduate student loans.47 For private credit, a financing type rapidly expanding its footprint in asset-based lending, these new incentives and restrictions uniquely position it to serve borrowers affected by this legislation.48 Further, in August 2025, President Trump signed an executive order signaling his administration’s intent to allow beneficiaries of defined contribution plans to invest in “alternative assets,” including private credit and other private investments.49 Although executive orders do not have the force of law, the order directs the Secretary of Labor to reexamine the Employee Retirement Income Security Act guidance that has largely prevented defined contribution plan beneficiaries from investing in such assets.50 The bell signaling the complete embrace of private investments has been rung, and it appears that, in due time, retirement savers may be able to include private investments, such as private credit, among their 401(k) investment options.

C. Necessity of the Private Credit Market

Private credit is a form of alternative investment that fills a gap left by regulation and forwards de-risking banking trends, where financial institutions terminate existing business relationships to minimize their exposure to default risk.51 Not only is private credit a financier to the middle market, but it also offers investors numerous benefits. The chief benefits of private credit lie in its flexible debt offerings and the speed at which it can provide capital.52 

These efficiencies and diverse debt offerings are the direct result of minimal regulatory oversight.53 A lightly regulated alternative market for capital might not necessarily be a negative; it enables a broader range of borrowers, including those who might not meet traditional banking standards, to access capital efficiently, with adaptable terms. Moreover, the investors and borrowers involved in the private credit market are sophisticated parties.54 These sophisticated parties include the likes of investment company giants such as The Blackstone Group, Apollo Global, and KKR, to comparatively smaller credit asset managers with billions of dollars of capital under management, such as Golub Capital LLC and TPG Twinbrook.55

Hence, those engaged in these transactions typically conduct due diligence and are willing to sacrifice financial stability for enhanced confidentiality and efficient capital access. Alternatively stated, these investors and borrowers are willing to take the bitter with the sweet; to access quick money at the expense of heightened risk. But this heightened risk is not unmitigated, as parties involved in private credit are incentivized to negotiate strong covenants and charge higher interest rates to compensate for assuming additional default risk from middle-market debtors.56 Moreover, since private credit is a closed-end fund—an investment structure with a fixed number of shares offered to a limited pool of investors, typically with terms of five years or more—these features seem to minimize run risk, which is the risk of investors trying to withdraw their total investments simultaneously, commonly faced by traditional lenders because accessing the fund is significantly restricted.57 Therefore, private credit appears to have numerous solutions to deal with issues inherent in its perceived “riskier” industry.

D. Why We Should Care About the Private Credit Market

As established previously, private credit represents a necessary and financially innovative market that should be fostered. Therefore, before delving into the current trends in private credit and the potential challenges these trends may pose for regulators striving to implement effective financial containment, it is essential to first understand why regulating private debt is critical. To do so, we must revisit the concept of systemic risk introduced earlier in this Comment.58

Now, as mentioned previously, the major players in private credit are massive financial firms managing billions in capital, and are often perceived to be unsympathetic parties.59 This raises an economically Darwinist question to regulators: why should we care if one of these massive financial firms fail? To quote Paradise Lost, “sufficient to have stood, though free to fall.”60 Shouldn’t this principle be applied equally to these “massive financial firms?”

While this line of thinking may hold instinctive appeal, it should ultimately be resisted. The failure of one of these “massive financial firms” can send shockwaves beyond the financial services industry, with significant repercussions for the broader economy. Consider that private credit firms fundraise primarily through issuing debt securities to institutional investors, including pension funds, university endowments, private equity firms, high-net worth individuals, and, increasingly, banks.61 At first glance, these entities appear to be sophisticated market participants. But many of these entities, particularly pension funds and deposit-taking institutions, manage the financial interests of everyday individuals, unsophisticated parties like retirees and savers, who rely on them to safeguard their investments. For instance, this includes firefighters in the Chicago Firemen’s Annuity and Benefit Fund and teachers and librarians in the California Public Employees’ Retirement System.

These individuals and others rely on fund managers, bank executives, and trustees to make prudent investment decisions on their behalf. While these fiduciaries are bound to heightened legal duties to act in the best interests of their beneficiaries, they often operate with substantial freedom and face minimal regulatory scrutiny regarding the quality of debt they invest in.62 Pension plans in particular have a history in investing in private funds, including private debt, which are often perceived as riskier and are not similarly accessible to participants in defined contribution plans,63 although as previously mentioned, the Trump administration’s executive order expanding access to “alternative assets” within 401(k) plans may soon change this asymmetry.64 This leaves room for increased exposure to systemic risk, which could jeopardize the financial security of unsuspecting savers, pensioners, and depositors. It is important to note that depositors are partially insulated from systemic risk through FDIC insurance, which protects deposits up to $250,000.65 However, any deposits exceeding this threshold are not covered by the insurance,66 leaving those funds vulnerable. Unlike depositors, pensioners lack equivalent protections, other than their pensions being guaranteed up to a percentage.67

The rationale for creating a “system” to deal with the systemic risk in private extends beyond preventing the next 2008-style financial crisis,68 as it also protects prudent savers and unsophisticated parties—ranging from retirees depending on pensions or 401(k)s to depositors relying on the stability of banks—from catastrophic losses. Therefore, the goal of this “system” is twofold: to safeguard the overall economy from systemic risk through containment and to shield ordinary individuals from the fallout of reckless investment practices in an opaque and under-regulated market.

III. Current Trends in Private Credit

A. Interconnectedness with Other Market Participants

Due to the ambiguous application of financial regulations, private credit no longer operates in isolation.69 In recent years, private credit has increasingly partnered with banks and other investment companies to finance new deals70 and transfer risk.71 As a result, despite being marketed as an alternative investment meant to diversify risk, private credit has become closely intertwined with banks and other institutional lenders.

This growing interconnection means that the financial stability and default risks associated with private credit could now affect both bank and non-bank institutions alike. Furthermore, the relationship between deposit-taking financial institutions and private credit providers appears not to extricate risk from these parties, which contradicts the intent of the Dodd-Frank Act.72 This situation primarily raises concerns about financial containment, prompting regulators to consider how best to insulate financial markets from systemic risk.

These systemic risks arising from interconnectivity are heightened because of the limited disclosure requirements for private credit investors. Lack of prudent regulation, coupled with complex private credit funding structures obscures true leverage levels, complicating efforts for banks and other parties to evaluate the risk associated with private credit. Thus, transmission of losses from private credit institutions to their counterparties is probable. As a result of this opaque credit market, efforts to accurately negotiate sound credit agreements reflecting parties’ risk profiles are stymied, and the potential for losses and negative economic spillover effects is heightened.

Additionally, private credit has expanded to funding larger companies outside of the middle market that were traditionally funded by syndicated loans from banks.73 Peer-to-peer lending has also increased within private credit, creating a concentrated secondary market, where peer private credit firms lend to one another, increasing localized default risk, especially if loans are unsecured.74

Furthermore, there has long been a perception that participants in private markets generate higher returns for their investors. As a result, both regulators and participants in private credit and private equity have focused on democratizing access to these investments.75 Historically, only defined benefit plans have been able to invest in these sorts of private investments.76 However, due to private efforts and recent executive orders to expand access to private credit and equity investments,77 it is becoming likely that “ordinary individuals” and 401(k) savers will unknowingly be exposed to the higher risks associated with these investments. Ultimately, private credits’ rapid rise and interconnectedness with banks and other market participants have heightened systemic risks in financial markets.

B. Emergence of Business Development Companies (“BDCs”)

BDCs are Registered Investment Companies (“RICs”) that are subject to SEC reporting requirements and securities regulations.78 BDCs serve as a large, integral funding source for private credit, equity, and alternate investments, with total assets growing 8% quarter over quarter, reaching $402 billion in the second quarter of 2024.79 Notably, private-credit loans account for half of BDC assets.80 The appeal of BDCs is that they offer asset managers a flexible fund structure that is a hybrid between operating companies and registered investment companies.81 Since BDCs are publicly listed as RICs, they have to comply with reporting standards leading to greater transparency, reduced opacity, and associated tax benefits.82

BDCs can be classified into three types: publicly traded, non-traded, and privately offered BDCs.83 The differences between these BDC structures are the range of liquidity offered, where they are listed, industries that they target, and regulatory hurdles that they must clear. These hurdles range from federal securities laws to “Blue Sky” laws, which are state-level regulations designed to protect investors from fraudulent or overly speculative investments.84 The risks associated with BDCs chiefly stem from the investments and underlying loans that the BDC enters into. Publicly traded BDCs have to comply with SEC reporting and disclosure requirements, increasing transparency. But the chief risk of BDCs is their underlying investments in private debt and private firms which have minimal public information available. As a result, while the BDC structure provides some legitimacy in its form, the BDC’s underlying investments tend to be risky and speculative.85 Hence, while BDCs give the appearance of being the best of both worlds between private credit and RICs, the structure of BDCs does little to address the underlying risk associated with investing in private debt and companies.86

C. Trends Toward Covenant Lite Loans

A common argument against increased regulation of debt markets is that both borrowers and lenders are sophisticated parties equipped with various tools to manage risk, such as negotiating robust covenants. While these tools are indeed available, recent trends show that borrowers and lenders are increasingly choosing to forgo them in favor of covenant-light, or “cov-lite,” loans.87 Much like how cyclists may go without wearing a helmet when riding on calm and familiar roads, lenders might see less need for stringent covenants when economic conditions appear stable. However, the popularity of cov-lite loans in private credit88 indicates a growing tolerance for risk, as borrowers and lenders actively overlook safeguards that could mitigate potential downturns.89 In fact, the volume of cov-lite loans outstanding reached approximately $1.249 trillion at the conclusion of 2023, which represented roughly 90% of leveraged loans.90

The trend toward cov-lite loans increases the systemic risks associated with private credit, as parties are willfully disregarding the protections afforded by tools at their disposal, such as strong covenants. This trend is particularly concerning given that, in recent years, private equity sponsors have adopted a more aggressive approach toward their creditors, exploiting gaps in loan agreements and engaging in liability management exercises including collateral stripping, a practice that shields assets from creditors in the event of default.91 This behavior, combined with existing default rates in the private credit industry, suggests that cov-lite loans may further undermine creditors’ ability to detect, monitor, and recover their loans from insolvent debtors.92 Not only do these liability management exercises hinder, and possibly foreclose, creditors from exercising their rights to payment and collateral, but they might incentivize lenders to engage in costly monitoring activities. Such activities may increase the cost of borrowing and chill lenders’ willingness to extend credit. To a greater degree, this increased lender oversight could infringe on borrowers’ management decisions reorienting firms to prioritize short-term debt servicing over pursuing long-term, shareholder value-enhancing projects.

D. Increase In Synthetic Risk Transfers

A synthetic risk transfer (“SRT”) is a structure where a bank loans to a firm and retains the senior, safer part of the loan and then transfers the riskier, higher-yielding portion of the loan to private credit or other investors.93 In this setup, private credit functions as a reinsurer, absorbing part of the bank’s initial risk exposure to the firm that it loaned to. This relationship is considered synergistic, as it enables banks to engage in direct lending, share risks, and better manage and free up regulatory capital otherwise constrained by proposed Basel III Endgame provisions.94 The synthetic risk transfer market is expanding, having historically been dominated by European and Canadian banks, reaching the size of €200 billion globally in 2022.95 Due to the bank failures of 2023, U.S. banks and lenders are increasingly entering the space.96

Despite these benefits, as banks and private credit enter into a more symbiotic relationship via SRTs, both sides become more exposed to hidden leverage and heightened default risk, which could have adverse spillover effects on the rest of the economy.97 Essentially, through SRTs, banks and private credit firms are engaging in a high-stakes exchange game of “hot potato,” insuring increasingly risky areas of debt in pursuit of higher returns. However, at some point, the responsibility will fall on one party, which could be left holding a defaulted loan, or to maintain this analogy, the “hot potato.” Such a default could trigger ripple effects, impacting other parties involved in the transaction, leading to systemic risk. The proliferation of SRT activity suggests that banks are effectively “re-tranching” their exposure.98 Since banks are now lending to private credit lenders, who in turn, re-lend those funds to end borrowers, glaring monitoring issues arise. Each lender is primarily incentivized to monitor the borrower with whom it is in direct privity, rather than the ultimate debtor, resulting in weakened oversight. Recent frauds involving Tricolor and Cantor Group, both of which ultimately defaulted, exemplify these structural weaknesses.99

E. Reemergence of Private Loan Securitizations

A Private Loan Securitization (“PLS”) is a structured financial product in which a bankruptcy-remote entity issues tranches of rated notes backed by a pool of corporate loans, allowing investors to participate in private credit loans.100 Similar to Collateralized Loan Obligations (“CLOs”), PLS transactions bundle and securitize loan portfolios. But these products differ because PLSs incorporate features from private funds, including more flexible capital deployment and a gradual funding model rather than a requirement to draw down all capital at once.101 The benefits of PLS structures are their bespoke, tailorable nature and their ability to offer regulated investors capital-efficient exposure to private credit.102 

Despite these benefits, PLSs have the same heightened exposure to credit risk as CLOs.103 This is due to the fact that the underlying loans in CLOs and PLSs are usually made to non-investment grade borrowers.104 But unlike traditional CLOs, PLSs can include even more diverse asset classes broadening securitization possibilities within private credit while also broadening risk exposure. The popularization of securitized loans reflects the cyclical nature of financial products, as these very products were a primary driver of the 2008 financial crisis, and subsequently fell out of favor with lenders, but now, given the current demand for private debt, they have once again regained prominence.105

F. Private Credit ETFs

In February 2025, Apollo, in collaboration with State Street, launched its SPDR SSGA IG Public and Private Credit ETF (“PRIV”). Although its rollout was initially marred by a myriad of issues in its initial prospectus, PRIV is the first ETF of its kind, and has pioneered retail investor access to both public and private debt.106 As of October 24, 2025, the fund held approximately $152.7M in assets under management and was trading at around $25.75 per share.107 To address valuation concerns arising from the opaque nature of private debt, the fund limits its holdings to securities deemed to be “investment grade.” However, it remains unclear how these securities are evaluated as “investment grade,” given the scarce amount of financial disclosure requirements applicable to private debt instruments.

Despite this, the more glaring issues associated with PRIV involve the time-horizon and liquidity mismatches inherent in its structure.108 Traditional private debt investors such as university endowments, private equity firms, pension funds, and asset managers are typically well-suited for illiquid private debt investments due to their long-term outlooks. Conversely, retail investors tend to have significantly shorter investment horizons and are less equipped to handle extended lock-up periods. To mitigate these liquidity concerns, Apollo has implemented a buyback program pledging to repurchase a limited percentage of redeemed shares while restricting how frequently investors may redeem their holdings. These “gates,” which cap daily or weekly redemptions, may mitigate individual run risk. Yet, it is unclear whether these gates would be effective if a wide swath of investors sought to redeem their shares simultaneously.

An additional concern is that this contractual buyback arrangement concentrates insolvency risk in Apollo, which could face an asset-liability mismatch if unable to meet redemption obligations. Moreover, because State Street serves as the ETF issuer while Apollo acts as the liquidity provider, the structure creates moral hazard concerns. State Street may be incentivized to aggressively market shares in PRIV because its liquidity risks have been offloaded to Apollo. This creates a troubling feedback loop where Apollo’s own assets effectively backstop its liquidity guarantee. Consequently, the arrangement resembles a stopgap for dubiously valued private investments underpinned by a contractual guarantee that could prove to be little more than “a promise that comforts a fool” if Apollo faces financial distress.

G. Trump Administration’s Embrace of Private Investments

As Professor William Birdthistle rightly predicted, the Trump administration has fully embraced private investments and has actively sought to reduce the barriers that limit retail investor access to them, under the guise of “democratization.”109 Chiefly, this will be accomplished by allowing defined contribution plan participants to allocate their 401(k) savings to private investments that include private equity and credit.110 While expanding the suite of investment options for savers is not inherently harmful and may even enhance diversification effects if private investments function as alternative investments, it is fair to be skeptical about how such investments are priced. Institutional investors, banks, venture capital firms, and private equity funds may be privy to private enterprises’ books and operations, which may assuage default concerns and facilitate informed valuation. However, this information is not uniformly available and is disseminated to the broader retail investor public only at the discretion of these private entities and their institutional partners.

Furthermore, even sophisticated market participants are not immune to cognitive biases or groupthink behavior that can distort valuations. Combined with the previously mentioned limited disclosure requirements surrounding private investments, these factors make it exceedingly difficult to evaluate such assets accurately, for only the wearer knows where the shoe pinches. Recently, Federal Reserve Chair Jerome Powell has warned that public equities appear “fairly highly valued,”111 underscoring that even in public markets with robust disclosure regimes, valuations are challenging. Moreover, if private investments are permitted to appear alongside public investments, even if clearly demarcated, the mere juxtaposition may have a subliminal “nudging” effect. Said differently, simply being presented next to public investments could legitimize and abate investor concerns regarding these opaquely valued instruments routing more retail money into private investments.

Finally, the Trump administration also appears to be positioning itself to sell off substantial amounts of student loan debt to third parties, including private credit firms.112 Again, while this move is not inherently harmful, it raises questions about whether student borrowers would prefer to be indebted to for-profit enterprises rather than the federal government. The former is more likely to pursue aggressive collection efforts to recover debts that are notoriously difficult to discharge in bankruptcy under § 523(a)(8).113 Further, such enforcement actions could exacerbate borrower distress. That said, since this development primarily concerns the choice of creditor, it may be presumptive to assume that a private creditor would necessarily be more exacting than the federal government.

IV. Managing The Risk Associated With These Trends

A. Purpose of Private Credit

Before solutions to mitigate the risk for private can be offered, it is important to understand the purpose of private credit. Private credit exists to fill a gap created by regulators after the financial crisis of 2008, to encourage institutional investors to diversify their portfolios, in an effort to practice systemic risk containment.114 Said differently, the aim of regulators up until 2020 was to prevent any one sector of the economy from being overexposed to default risk by having certain markets, such as banking, exclusively serve certain segments of the economy.115 With this foundation in mind, the aim of regulating private credit is not to reduce private credit’s innovation or efficiency, but to mitigate market-wide systemic risk by preventing private credit’s unique default risks from spilling over to other segments of the economy.

Therefore, to forward the legislative intent of regulators, I propose a litany of solutions taken individually or collectively as a “system” to mitigate the systemic risk in private credit by focusing on reinforcing the boundaries between private credit and public debt markets while also increasing monitoring and oversight of these industries. Imposing one or all of these solutions comprising the “system” would greatly enhance the resilience of the larger economy and protect against systemic risk. Again, the proposed solutions discussed in this Comment are not exhaustive and center on enhancing disclosure requirements, strengthening capital and reserves requirements, imposing leverage limitations, restricting certain high-risk investment behaviors, and focusing on covenant drafting. With each proposed solution I will also evaluate possible drawbacks to the proposed solutions and consider whether regulators have the capacity and interest to implement them.

As previously mentioned, for all the solutions proposed in this Comment, the first question is whether regulators have the capacity and interest to implement them. The straightforward answer to whether regulators have the capacity is yes. However, whether regulators are interested is a more complex question that will be addressed separately for each proposed solution. Although administrations overseeing the regulatory state, with their implicit biases and varying adherence and orthodoxy to differing political ideologies, change over time, it is important to note that all the proposed solutions in this Comment reflect elements of either former or existing regulations. This suggests that regardless of the political leanings of the individuals leading regulatory agencies, at least some of these solutions are feasible at any given time. Given their resemblance to precedents or current practices, there should be little doubt that an agency, if inclined, could implement these changes.

Further, when assessing the likelihood that regulators will be interested in implementing these proposed solutions, this Comment will also consider the probable rebuttals from regulated parties. For each proposed solution, I will focus primarily on one key counterargument. In general, whenever new regulations are proposed, regulated parties often push back, raising a range of objections typically framed as either slippery slope arguments or efficiency concerns. These arguments often take the form of: “If regulators pursue X, what’s to stop them from pursuing Y?” or “The excessive costs of this regulation outweigh its minimal benefits.” While resistance to change is a natural human tendency, this Comment will place less emphasis on these generic counterarguments. Instead, the focus will be on the broader implications of the proposed solutions and whether these implications should influence regulators’ interest in implementing them.

B. Reinforce and Clarify the Volcker Rule 

The 2020 amendments to the Volcker rule diluted the rule’s original intent.116 Specifically, the amendments to the Volcker rule list entities that are now permissible for banks to invest in or sponsor which include: credit funds, venture capital funds, family wealth management vehicles, and customer facilitation vehicles.117 This amendment essentially eliminates the boundary insulating private credit markets from public debt markets and can be seen as the catalyst for the recent surge in symbiotic relationships between private credit providers and banks.118 The amended Volcker rule is troubling because it poses unique issues related to how to mitigate the risk of spillover due to the rule’s “floodgates” being eroded. Put another way, the riskier clients served exclusively by private credit and other entities due to regulatory differences can now be served by banks.119 Therefore, the associated risks with serving those clients such as gaps in data, inaccurate valuations, and ineffective monitoring have now permeated public debt markets.

To address these issues, recent amendments to the Volcker rule that relaxed leverage limits and permitted banks to transact with and service private funds should be reconsidered or overturned to reinforce the floodgates between private credit and public debt markets. In addition, the Volcker rule should be clarified to minimize ambiguity in its statutory language. For example, the rule should explicitly stipulate what types of proprietary trading, fund investments, and market-making activities are prohibited or permissible, rather than relying on a vague “purpose test” and utilizing other unclear standards.120

Future amendments should clearly specify these activities to enhance compliance and reduce confusion, while acknowledging that any bright-line rule may be under- or over-inclusive. Amending the Volcker rule to include pointed clarifying language would help eliminate uncertainty for banks regarding impermissible activities and arrangements and could potentially reduce the need for the current 900 pages of interpretive guidance that accompanies the rule.121

Despite the potential benefits of reinforcing the Volcker Rule through overturning its amendments, there are some notable drawbacks. Restoring the Volcker Rule to its original form, essentially prohibiting banks and other deposit-taking institutions from speculatively investing in middle-market firms, would likely draw strong criticism from regulated parties. This is due to the fact that such restrictions would significantly limit the amount of lending activities these deposit-taking institutions could engage in.

Moreover, this approach would exacerbate the existing default and credit risks associated with lending to middle-market firms by pushing these activities into less regulated, more opaque sectors, such as private credit. Excessive regulation, or outright prohibition of certain investment behaviors, often drives these activities into unregulated spaces with limited oversight. To mitigate this risk, if regulators were to pursue reinstating stricter Volcker Rule provisions, they should simultaneously implement enhanced disclosure requirements for private credit markets. This dual approach would maintain transparency and oversight, preventing these activities from becoming hidden and unmanageable.

To illustrate with an analogy: imagine your parents are coming home, and there’s a pile of clothes strewn across your floor. You know that leaving the pile there will result in a scolding or grounding, but you also know how long it would take to fold and organize the clothes (analogous to the current, lightly regulated debt market). Instead, you decide to shove the pile of clothes under your bed (akin to overregulating deposit-taking institutions, thereby pushing middle-market lending into private credit). While this action may seem like a quick fix to avoid immediate consequences, it eliminates your ability to monitor the pile’s size and growth. Over time, the hidden pile accumulates under your bed unchecked, creating a larger and more difficult issue to manage in the future and worse consequences such as a grounding (similar to a financial failure).

If regulators pursue overturning the amendments to the Volcker Rule, thereby restricting banks and other institutional investors from participating in middle-market lending or private credit, they must balance these prohibitions with enhanced transparency requirements. These could include disclosure obligations, such as an expanded Form PF (discussed later in Section IV.D.), to ensure accountability and oversight in private credit markets.

Notably, restricting certain industries’ ability to engage in specific investment behaviors is not unprecedented. For example, Section 206(3) of the Investment Advisers Act of 1940 places restrictions on principal transactions conducted by Investment Advisers in which an adviser buys or sells securities from their own account to clients.122 Also, The Bank Holding Company Act limits banks’ ability to own or invest in real estate investment trusts.123 These examples could serve as a baseline for regulators drafting new rules, demonstrating that targeted restrictions, when coupled with appropriate regulatory safeguards, can effectively mitigate systemic risks.

C. Align U.S. Banking Standards with Basel III Endgame

Basel III Endgame is a set of provisions developed by the international Basel Committee that stipulate the amount of capital that banks must retain to mitigate credit, operational, and market risks.124 In 2023, federal regulators published for comment changes to bank capital rules intended to align with the Basel III standards.125 Despite this push, the plan to implement Basel Endgame remains pending. Under the Trump administration, Basel Endgame rules are widely believed to be “dead.”126 However, this perceived “death” does not undo the existing Basel rules that the United States has agreed to, but is expected to result in a fragmented global capital regulatory environment.

The chief difference between existing U.S. bank capital requirements and Basel III is the amount of capital that banks and financial institutions need to maintain. Basel III capital requirements are higher than existing U.S. capital requirements.127 Therefore, mirroring Basel III’s requirements serves two purposes. First, it would be an effective way to mitigate risk by requiring banks to retain more capital to deal with the adverse repercussions of risky investments. Second, these requirements would increase costs on banks for financing risky endeavors which would discourage banks’ partnerships with private credit.128

Moreover, since Basel III is a provision outlining general capital requirements for banks. Federal regulators should explore outlining differentiated capital requirements based on various bank lending types. These differentiated capital requirements should be determined on a risk-weight analysis and, for our purposes, set higher for lending to the private credit industry.129 This targeted approach would enable regulators to identify and buffer higher-risk activities, providing a tool to temper banks’ engagement in riskier parts of the economy. This would enable regulators to set capital requirements for banks that lend to private credit entities to effectively mitigate the systemic risk associated with writing loans to such entities.

The primary concern with imposing capital or reserve requirements on deposit-taking institutions engaged in private credit is the perceived inefficiency in deploying capital.130 Essentially, regulators would be requiring banks and similar institutions to maintain a “rainy-day fund” to mitigate the potential spillover effects of private credit risks on the broader economy. This requirement is often criticized as an inefficient use of resources, as the reserves could otherwise be deployed more productively—for instance, to spur M&A activity, finance expanding businesses, or fund R&D initiatives.131

However, this critique may stem more from a framing issue than an inherent flaw in the proposal. Rather than viewing these reserves as idle funds that could be used more effectively elsewhere, they should be understood as a necessary transaction cost of doing business. Regulators could communicate that while the goal is to encourage banks and deposit-taking institutions to participate in private credit markets, they must also recognize the risks associated with servicing these inherently risky middle-market firms. Setting aside reserves serves as a precautionary measure to address those risks if they materialize.

This proposed solution is akin to owning a fire extinguisher in an ever-expanding building. The hope is that you never have to use it, and while it may be inconvenient and costly to maintain or replace fire extinguishers as the building is expanded, their presence is invaluable in case of a fire. Similarly, if a crisis or default arises, the availability of adequate reserves will prove critical to minimize the harm caused and the impact on systemic risk. In fact, Vice Chairman of the Federal Reserve, Michael Barr, has argued that adequate capital reserves could have mitigated the fallout of the Silicon Valley Bank and First Republican Bank collapses in early 2023.132

Despite criticisms claiming that capital requirements might hinder the productive deployment of capital, it is important to note that there is no empirical evidence suggesting that capital and liquidity requirements negatively impact lending.133 In other words, Basel requirements and similar reserve requirements neither harm borrowers nor deter lending. Hence, it is difficult to allege that increasing capital requirements imposes any significant social costs beyond improving the resilience of the financial system.134 Therefore, the criticisms from banks and like institutions regarding capital requirements, particularly those outlined in Basel, appear to be little more than crying wolf. 

D. Create a Form PF for Private Credit to Reduce Data Gaps

One of private credit’s primary attractions is its discretion, oftentimes characterized as opacity, due to its limited reporting requirements.135 To better monitor risk, regulators should implement robust data collection measures, coordinate oversight across jurisdictions, and enhance transparency in private credit operations.136 The SEC’s recent amendment to the Form PF now requires private equity funds exceeding $1.5 billion in assets to file regular reports, detailing among other things, secondary transactions, fund operations, clawbacks, and the identities of general and limited partners.137 This amendment is a promising step towards greater transparency in the financial sector.138 However, because private credit involves lending rather than equity management, it remains excluded from Form PF requirements. Introducing a version of Form PF specific to private credit, applicable to firms with loan portfolios exceeding $1 billion, would address this gap. This form would allow regulators to gather necessary data, facilitating risk assessment and regulatory oversight in this expanding market.139

Implementing a Form PF for private credit would fundamentally alter one of the sector’s key appeals: its anonymity. Private funds and credit entities have been able to lend and deploy capital efficiently, in part because they are not subject to the sometimes-costly disclosure requirements imposed on other financial institutions. Predictably, regulated parties opposing this proposal will raise familiar efficiency complaints, similar to those discussed earlier. As I’ve already addressed such arguments, I won’t dwell on them here. Instead, I’ll focus on the broader value of expanding Form PF to include private credit.

Form PF essentially functions as a regulatory seismograph. Much like listening for seismic waves to detect potential earthquakes, a form PF enables regulators to monitor for systemic risks within the market. It provides a mechanism to assess whether precautions are necessary and, if so, to what extent. This makes a Form PF an invaluable tool, as it provides critical information for evaluating financial risks. While the U.S. economy may not be perched directly on a fault line, its history of financial crises underscores the importance of proactive risk evaluation. If this can be achieved at minimal cost through expanded confidential disclosures made directly to regulators, it represents a worthwhile regulatory outcome. Furthermore, if regulated parties persist in complaining that a Form PF eliminates anonymity, the natural question to ask is: “What are you trying to hide?”

Finally, research conducted by Professor Colleen Honigsberg, has shown that increased disclosure requirements provide marginally greater benefits than heightened enforcement of existing SEC regulations.140 This suggests that enhanced disclosure, despite its associated costs, is a more effective and cost-efficient means of regulating opaque sectors of the economy compared to relying solely on enforcement, or avoiding regulation altogether.141

E. Expand Rule 18f-4 to Include Loans to Private Credit

Rule 18f-4, established under the Investment Company Act of 1940, is a SEC regulation designed to limit the amount of leverage that registered investment funds, such as mutual funds and ETFs, can take on through derivative investments.142 The rule achieves this by restricting how much public money can be used for leveraged positions. It calculates a fund’s risk using a Value-at-Risk (“VaR”) metric and caps that metric at 200% of the underlying fund’s performance.143 In this context, VaR refers to an estimate of potential losses on an instrument or portfolio, expressed as a percentage of the portfolio’s assets.144 Said differently, the rule caps potential portfolio losses at twice the value of the underlying investment, thereby safeguarding against excessive risk exposure through derivatives trading.145

The value of applying a similar leverage limitation to private credit investments is intuitive. By capping the amount of loans a bank or similar institution can write to fund private credit, the overall risk associated with such investments is minimized. This, in turn, reduces the likelihood of that risk spilling over into the broader economy and contributing to systemic risk. Further, leverage-limiting measures are not an entirely foreign concept to private credit. Insurance companies, for example, are already subject to similar regulations. The National Association of Insurance Commissioners (“NAIC”), a standard-setting regulatory support organization, provides such guidance for U.S. insurance companies.146 Under NAIC Model Law MDL-340, the aggregate amount of a domestic insurer’s portfolio can consist of no more than 20% medium- to lower-grade obligations (loans).147 Although NAIC model laws are technically recommendations, many state legislatures have adopted them in some form.148 Regulators looking to formulate leverage-limiting regulations for loans written to private credit could use NAIC standards as a reference point.

The drawbacks of implementing a Rule 18f-4-style regulation for private credit echo the concerns raised about aligning U.S. banking standards with Basel III or imposing capital and reserve requirements previously discussed in Section IV.C. Namely, such measures would limit the amount of loan-writing activity banks and similar institutions could undertake. To avoid redundancy, I will not revisit these arguments in detail here. However, expanding rule 18f-4 offers a particularly attractive alternative to outright reserve requirements.

Rather than forcing firms to set aside idle funds for a potential “rainy day,” the rule allows institutions to continue lending to private credit while capping their exposure within a portfolio. Codifying the percentage of private credit loans a bank can write may seem paternalistic, but it aligns with other well-established leverage or margin limits in financial regulation.149 This approach balances risk mitigation with continued market activity, making it a pragmatic solution for addressing systemic risk concerns in private credit.

Importantly, regulations limiting the extent of investments banks and traditional lenders can make with specific entities are not uncommon. For instance, Regulation W prohibits banks from investing more than 10% of their capital with affiliates or any company that is controlled by the bank.150 Regulation W is designed specifically to prevent excessive exposure to related entities, thereby safeguarding a Bank Holding Company from heightened risk from certain of its affiliates' activities.151

In this context, Regulation W may hold increased significance for regulators scrutinizing direct lending activities by banks, which represent a bank’s efforts to engage in private credit lending. By capping exposure and promoting transparency, these regulations help minimize the systemic risk banks are exposed to while they participate in private credit markets.

F. Emphasize “Covenant-Tight” vs. Covenant-Lite Agreements

The previously discussed solutions for containing the systemic risk associated with private credit primarily focus on adapting or expanding the regulatory framework. However, as hinted at in the previous section about the emergence of cov-lite loans, systemic risk can also be addressed through using existing tools like contractual covenants. In the context of loans, covenants serve as critical safeguards that protect lenders by ensuring debtors adhere to pre-negotiated terms.152

Loan covenants can function similarly to other systemic risk mitigation tools by: (1) limiting leverage, (2) enabling lenders to monitor debtors’ financial statements and risk profiles, and (3) requiring debtors to maintain adequate reserves. Also, creditors can draft negative covenants that restrict borrowers from engaging in certain financing activities or making imprudent expenditures. The flexibility and customizability of these covenants are virtually limitless. Accordingly, if lenders sought to curb the rise of liability management exercises, they could easily do so by drafting “covenant-tight” loans. Such agreements would compel attorneys to consider ex-ante the precise language of their credit agreements and negotiate blockers designed to prohibit the most egregious forms of these exercises. In fact, a 2024 article by Professor Vincent S.J. Buccola suggests that lenders have already started to implement such blockers to prevent borrowers from engaging in uptier exchanges.153 By tailoring these covenants to align with a lender’s specific risk profile and capacity, contract drafting becomes a powerful tool to manage risk.154 What’s more is that this approach can be implemented immediately without waiting for regulatory action, which offers traditional and alternative lenders engaging in private credit a flexible and adaptive solution to mitigate their exposure to systemic risk.

The primary drawback of relying solely on covenants to manage systemic risk in private credit is their inherently individualized nature. While covenants may effectively mitigate risks between a specific lender and debtor, they do little to address systemic risks across the broader financial industry. Without a uniform default framework to govern these relationships, exposure to risk is dictated solely by information asymmetry and the disparities in sophistication between parties. This creates inconsistencies in how risk is managed and whether credit agreement terms will be enforced.

Moreover, the specialization of covenants can be as much a weakness as a strength. Cov-lite agreements may be so lenient that they are effectively unenforceable, while cov-tight agreements may impose excessive control over the debtor, potentially creating a problematic principal-agent relationship.155 This dynamic can inadvertently expose lenders to a debtor’s financial difficulties, undermining any intended risk mitigation.

Ultimately, while covenants provide an immediate, customizable tool for managing risk, their individualized nature and potential enforceability challenges limit their effectiveness as a comprehensive solution for systemic risk. Hence, a larger regulatory “system”, as represented by the previously proposed solutions, is a superior solution and should be pursued by regulators.

V. Conclusion

Private credit has long existed in various forms,156 but its recent explosive growth stems largely from regulatory gaps that hindered banks’ ability to service the middle market.157 Moreover, private credit offers significant advantages including adaptable financing arrangements, greater privacy, and the ability to cater to a diverse range of medium-sized and nontraditional borrowers.158 But recent legislation and trends have obfuscated the line between private credit markets and public debt markets, fostering increased collaborations and innovative financing arrangements between banks and private credit providers.159

Given private credit’s meteoric rise and deepening ties with other segments of the economy, it is critical to assess how regulatory measures might contain the financial risks concentrated in private credit before they spread to other areas of the economy. To mitigate these systemic risks regulators should pursue a cohesive regulatory “system” that centers on enhancing disclosure requirements, strengthening capital and reserves requirements, imposing leverage limitations, restricting certain high-risk investment behaviors, and emphasizing the importance of covenant drafting to better dichotomize private credit from public debt markets.

Specifically, regulators should consider amending the Volcker rule to explicitly prohibit banks from engaging in private credit transactions, align U.S. bank capital requirements with Basel III Endgame to effectively hedge banks’ risky investments, establish a Form PF for private credit to boost transparency and reduce data gaps, expand rule 18f-4 to include institutions that loan to private credit to limit leverage, and emphasizing the importance of tailoring covenants in credit agreements to match the risk profiles of parties.

Ultimately, the goal of these proposed solutions is financial containment, similar to a levee separating two bodies of water. Currently, the inherent risks of private credit are percolating through a hole in the levee and commingling with the inherent risks present in public debt markets. Regulators, like civil engineers, must design and implement the most effective “system” to repair this leak to protect both markets’ integrity, innovation, and to mitigate the adverse consequences of larger systemic risks.

• See Sam Boocker and David Wessel, What is Private Credit? Does it Pose Financial Stability Risks?, Brookings (Feb. 2, 2024), https://perma.cc/6RP7-8LE2.
• See Ashwin Krishnan, Understanding Private Credit, Morgan Stanley (Jun. 20, 2024), https://perma.cc/4DYP-WEEV.
• Id.
• See Krishnan, supra note 2, at 2.
• Id.
• See Krishnan, supra note 2, at 2.
• See Gilles Dellart, Private Credit: From Mid-Market to Real Economy Financier, Blackstone (Aug. 8, 2024), https://perma.cc/L9RT-8EJ5; see also Niket Nishant, Citi Joins Hands with Apollo for $25 Billion Private Credit Program, Reuters (Sept. 26, 2024), https://perma.cc/V3B5-HKNK.
• See Filip De Mott, Jamie Dimon Says There Could be ‘Hell to Pay’ if the Swelling Private-Credit Market Starts Showing Cracks, Business Insider (May 30, 2024), https://perma.cc/5SGL-5YZY; see also International Monetary Fund & Monetary and Capital Markets Department, Global Financial Stability Report for April 2024, International Monetary Fund (Apr. 16, 2024), https://perma.cc/75LT-FPS5.
• See Director Martin J. Gruenberg, Notice of Proposed Rulemaking: Volcker Rule Prohibition on Hedge Funds and Private Equity Funds (Jan. 30 2020), FDIC. (Statement available at https://perma.cc/5YWU-EN5Q.).
• See Julie L. Stackhouse, Why Didn’t Bank Regulators Prevent the Financial Crisis, Federal Reserve Bank Of Saint Louis (May 22, 2017), https://perma.cc/5HME-LNN9.
• See James Chen & Robert C. Kelly, What is Systemic Risk? Definition in Banking, Causes and Examples, Investopedia (Aug. 28, 2024), https://perma.cc/T43D-4EPU.
• See Andrew Beattie & Thomas Brock, Wall Street History: Railroads and Rockerfeller, Investopedia (Oct. 23, 2024), https://perma.cc/BAZ8-5NUK; see alsoHow Banks and Private Credit Became the Best of Frenemies, Odd Lots (Oct. 24, 2024) (downloaded using Spotify); see also Michael S. Barr, Howell E. Jackson, & Margaret E. Tahyar, Financial Regulation: Law and Policy 1099 (Saul Levmore et al. eds., 3rd ed. 2021).
• Id.
• Id.
• See Van Spina, The Definitive History of Private Credit, Wall Street Fintech (Feb. 13, 2024), https://perma.cc/H2YH-Y3MZ.
• See Adam Hayes, Cierra Murry, & Suzanne Kvilhaug, Middle Market Firm: Definition, Criteria, and How they Trade, Investopedia (May 17, 2022), https://perma.cc/DD3Q-R7QV.
• Id.
• See2023 Mid-Market 500, CEO Connection, https://perma.cc/8PS6-MLCU (last visited Jan. 31, 2025).
• See Luke Goldstein, The Systemic Risk of Big Accounting, The American Prospect (Mar. 21, 2023),  https://perma.cc/R9E4-4NUU.
• See Hayes, supra note 16, at 5.
• See James Chen, Margaret James, & Suzanne Kvilhuag, Volcker Rule: Definition, Purpose, How it Works, and Criticism, Investopedia (Jun. 22, 2022), https://perma.cc/4JVP-TWDP.
• SeeDepartment of the Treasury Office of the Comptroller of the Currency Federal Reserve System Federal Deposit Insurance Corporation, Interagency Guidance on Leveraged Lending (2013).
• See Gillian Tan, Credit Suisse Loans Draw Fed Scrutiny, The Wall Street Journal (Sept. 16, 2014), https://perma.cc/HA82-7VFE.
• See Tony Davidow & Priya Thakur, The Evolution of Private Credit, CAIA Association (Jun. 9, 2025), https://perma.cc/4LDU-9GPE.
• See Tan, supra note 25, at 6.
• See Sabina Comis, Dr. Markus P. Bolsinger LL.M., Christopher Field & et al., Private Credit Takes Center Stage in Acquisition Financing, Dechert LLP (Nov. 6, 2023), https://perma.cc/WT7R-LP7G.
• See Matthew Harvey, Middle Market Remains Private Credit Sweet Spot, PGIM Investments (Dec. 12, 2024), https://perma.cc/4PQ9-FX4A.
• See Oliver Keyser, Global Alternatives Markets On Course to Exceed $30tn by 2030 – Preqin Forecasts, Preqin (Sept. 18, 2024), https://perma.cc/7GL2-NA98.
• See Mark J. Roe & Chales C.Y. Wang, Half the Firms, Twice the Profits: Public Firms’ Transformation, 1996-2022, (European Corporate Governance Institute, Law Working Paper No. 771/2024).
• See Thomas Franck, FDIC Approves Tweak of Volcker Rule, Easing Trading Regulations for Wall Street Banks, CNBC (Aug. 20, 2019), https://perma.cc/C5DU-GYUM.
• See Krill Lelchitskiy, The Volcker Rule: Criticisms and Compliance Issues, UC Berkeley Law (Apr. 21, 2014), https://perma.cc/R8BZ-ESKW.
• See Michael Nonaka, Karen Solomon, & Randy Benjenk, The Volcker Rule “Covered Funds” Rule: Eight Things to Know, Covington (Jun. 29, 2020), https://perma.cc/54LM-G6F4.
• See Brendan McCurdy, Understanding Private Credit, Ares Wealth Management Solutions (Jun. 29, 2023), https://perma.cc/HND9-VZKA.
• See Sayee Srinivasan & Jeff Huther, The Basel III Endgame Proposal: Yet Another Gift to Private Credit Funds, ABA Banking Journal (Nov. 3, 2023), https://perma.cc/2PWA-X6F7.
• Id.
• See Jonathan Adler, Gavin Anderson, Jason Auerbach, Sally Bergmann Hardesty, et al., Notice and Reporting Requirements for Private Fund Sponsors, Debevoise & Plimpton (Jan. 16, 2024), https://perma.cc/DSK8-YDRR.
• See Reem Heakal, Andy Smith, & Ryan Eichler, Glass-Steagall Act of 1933: Definition, Effects, and Repeal, Investopedia (Jan. 25, 2024), https://perma.cc/F6M2-DL2E.
• Id.
• See Heakal et al., supra note 37, at 8.
• See Tim Sablik, Central Bank Lending Lessons from the 2023 Bank Crisis, Econ Focus (Sept. 30, 2024), https://perma.cc/WYA6-SKK4.
• See Christopher Alkan, The Rise of Private Credit, Accounting And Business (Dec. 2023),https://perma.cc/WZ45-C7GS.
• Id.
• H.R. 1, 119th Cong. (2025).
• See Yale Budget Lab, Interest Costs Associated With The One Big Beautiful Bill Act, Yale University (Jun. 10, 2025), https://perma.cc/9UCH-JJJN.
• See Kevin Breuninger, Trump Says he’d love to fire Powell, urges Bessent to ‘work on’ him to lower rates, CNBC (Nov. 19, 2025), https://perma.cc/4VB9-KBTS.
• See Thomas Reuters Tax & Accounting, Federal Implications of the ‘One Big Beautiful Bill’: What’s Changing and How to Respond, Thomas Reuters (Jul. 21, 2025), https://perma.cc/8YFP-ZMA3.
• See Kamaron McNair, Federal Student Loans will be a ‘Better Bet’ Than Private, CNBS (Jul. 28, 2025), https://perma.cc/M37L-K9SF.
• See Issac Taylor, Private Credit Primed to Profit From New Federal Student Loan Limits, WSJ (Aug. 14, 2025), https://perma.cc/9EUS-DQWV.
• Exec. Order No. 14330, 90 Fed. Reg. 38921 (Aug. 12, 2025).
• Id.
• See Dellart, supra note 7, at 2.
• See Lisa Rafter, The Speed Premium: Quantifying Private Credit’s Execution Advantage in Middle Market Transactions, ABF Journal (Dec. 12, 2025), https://perma.cc/6UEC-DJ9W.
• See Cai Fang and Sharjil Haque, Private Credit: Characteristics and Risks, Feds Notes (Feb. 23, 2024), https://perma.cc/R4BK-E8JZ.
• See Block, J., Y.S. Jang, S. Kaplan, and A. Schulze, A Survey of Private Debt Funds, National Bureau Of Economic Research, (Jan., 2023), https://perma.cc/M43Q-E6J9.
• See Corbin Buff, 7 Top Largest Private Credit Funds in the World, Wallstreetzen (Jan. 21, 2025), https://perma.cc/EU3S-NJBW; see alsoThe Top Private Debt Firms of 2024, G/C GROWTHCAP, https://perma.cc/QG7X-GAU6 last visited Jan. 31, 2025).
• See Deutsche Bank Trust and Agency Services, Private Credit – a Rising Asset Class Explained, Deutsche Bank (Oct. 9, 2024), https://perma.cc/GPP2-SP34.
• SeeThe Evolution of Private Credit: Part 2, Business Breakdowns (May 15, 2024) (downloaded using Spotify).
• See Chen & Kelly, supra note 11, at 3.
• See The Black Hole of Private Credit That’s Swallowing the Economy, Odd Lots (Sept. 3, 2024) (downloaded using Spotify).
• See John Milton, Paradise Lost: Book 3, lines 98-99, Penguin Books, Limited (1989).
• See Martin Christensen, Private Credit: Definition, What It Is & How It Works, P2PMARKETDATA (Mar. 15, 2024), https://perma.cc/Y4WZ-L5M7.
• See Lisa Van Fleet & Randy Scherer, An Overview of Fiduciary Responsibilities Under ERISA, 2020 St. Louis Bar J. 14, 16-19 (2020).
• See Nancy Mohan & Tina Zhang, An Analysis of Risk-Taking Behavior for Public Defined Benefit Pension Plans, 40 J. Banking & Fin. 403, 405-06 (2014); compare with Harry Cendrowski, et al., Private Equity History, Governance, and Operations 17-19 (2012).
• See Exec. Order No. 14330 supra note 49, at 9.
• See Marcie Geffner, How Do You Insure Funds More than the FDIC Limit? U.S. News (Oct. 11, 2024), https://perma.cc/DKN5-J9CS.
• Id.
• See Amy Fontinelle & Anthony Battle, 3 Ways You Could Lose Your Pension – and How to Fight Back, Investopedia (Jun. 27, 2024), https://perma.cc/T9BW-LKZ4.
• See Chen & Kelly, supra note 11, at 3.
• See Dellart, supra note 7, at 2.
• See Gillian Tan and Paula Seligson, JPM is Seeking Out a Partner to Accelerate its Private Credit Push, Bloomberg (Nov. 1, 2023), https://perma.cc/R753-HK5G; see also Jack Pitcher, BlackRock Strikes $12 Billion Deal for HPS, Betting Big on Wall Street’s Hottest Market, The Wall Street Journal (Dec. 3, 2024), https://perma.cc/9AF2-E886; see also De Mott, supra note 8, at 3.
• See International Monetary Fund & Monetary and Capital Markets Department, supra note 8, at 3.
• See Fang et al., supra note 53, at 10; see also Van Spina, supra note 15, at 5.
• See Fang et al., supra note 53, at 10.
• See Kathryn Gaw, Invest & Fund: P2P has Earned its Place in Private Credit, Alternative Credit Investor (Oct. 24, 2024), https://perma.cc/RF2Y-CNCV.
• Testimony on “Oversight of the Securities and Exchange Commission” Before S. Comm. On Banking, Hous, & Urb. Affs., 116th Cong. 8 (2019) (Statement of SEC Chair Jay Clayton).
• See Mohan & Zhang, supra note 63, at 12.
• See Exec. Order No. 14330 supra note 49, at 9; and Larry Fink statement https://perma.cc/J7SJ-QNFS.
• See Clay Douglas & Rachel Schuman Harney, Demystifying the Three Main BDC Structures, Dechert LLP (Jul. 29, 2024), https://perma.cc/E6F9-4TRS.
• See Evan M Gunter, Ruth Yang, et al., BDC Assets Show the Prevalence of Payments-In-Kind Within Private Credit, S&P Global (Dec. 12, 2024), https://perma.cc/73QW-GBFA.
• Id.
• See Douglas & Harney, supra note 78 at 15.
• See What is a BDC, Blue Owl Capital Corporation, https://perma.cc/6PZM-LAEL (last visited Jan. 31, 2025).
• See Douglas & Harney, supra note 78 at 15.
• Id.
• See Larry Sewdroe, Considering Private Equity? Think Twice Before Investing in Business Development Companies, Morningstar (May 7, 2024), https://perma.cc/VJF9-EMZW.
• Id.
• See Thomas de Bastide, David Tarr, & Margot Wagner, Covenant-Lite Loans: Overview, Thomas Reuters (Jan. 23, 2024), https://perma.cc/95UM-9NNJ.
• Id.
• See Bastide et al., supra note 87, at 16.
• Id.
• See Mitchell Mengden, The Development of Collateral Stripping by Distressed Borrowers, 16 Capital Markets L.J. 56, 56–62, (2020) (discussing the development of the practice of collateral stripping and how it was utilized by J. Crew and Neiman Marcus).
• See Robin Blumenthal, Private Debt Defaults: What Lies Beneath? Private Debt Investor (Dec. 2, 2024), https://perma.cc/4GTP-G7PM.
• See James Keenan, Brendan Galloway, David Trucano, and William Im, Synthetic Risk Transfers (SRTs) A Growing Opportunity in Private Debt, Black Rock (Mar. 2024), https://perma.cc/5QDY-UCA9; see also Francisco Covas & Benjamin Gross, The Economics of Synthetic Risk Transfers, Bank Policy Institute (Dec. 17, 2024), https://perma.cc/6EAB-824Z.
• Id.; see also David Wessel, What is Bank Capital? What is the Basel III Endgame?, Brookings (Mar. 7, 2024), https://perma.cc/64DT-CUVZ.
• See Kennan et al., supra note 93, at 17.
• Id.
• See Blumenthal, supra note 92, at 16; see also Alkan, supra note 41, at 9.
• See Matt Lavine, Money Stuff: Banks Make Loans to Non-Banks, Bloomberg (Oct. 22, 2025), https://perma.cc/2PDM-SNHG.
• See Manya Saini, From First Brands to Ambipar: Latest Flashpoints in Credit Markets, Reuters (Oct. 24, 2025), https://perma.cc/AR24-8HFL.
• See Christopher P. Duerden, John M. Timperio, Melissa Wollis, Mary Bear, Tour De Private Credit: BeSPOKE Private Loan Securitizations Gain Traction, Dechert LLP (Jul. 14, 2023), https://perma.cc/A553-46FR.
• Id.
• Id.
• See Duerden et al., supra note 100, at 18.
• See Troy Segal, Samantha Silberstein, & Vikki Velasquez, Collateralized Loan Obligation (CLO) Structure, Benefits, and Risks, Investopedia (Dec. 12, 2023), https://perma.cc/RD43-EM2W.
• See William Sokol, CLOs vs. CDOs: understanding the Difference, Vaneck (Sept. 25, 2024), https://perma.cc/D9KE-CJTX.
• See Suzanne McGee, US Regulators, in Unusual Move, Raise Concerns About Private Credit ETF, Reuters (Feb. 28, 2025), https://perma.cc/ME8P-HS6F.
• Trading View, https://perma.cc/56GM-9HBJ (last visited Oct. 26, 2025).
• See Oisín Breen, The Unprecedented and Once ‘Unthinkable’ State Street-Apollo ETF Rollout is Still Setting Off Alarm Bells, RIABiz (Mar. 14, 2025), https://perma.cc/3J7C-L8EZ.
• See William A. Birdthistle, How Private Funds Could Hurt Americans Under Trump, The New York Times (Dec. 3, 2024), https://perma.cc/MB66-PKYA.
• See Exec. Order No. 14330, supra note 49, at 9.
• See Ryan Ermey, Federal Reserve’s Jerome Powell Warns That Stocks are ‘Fairly Highly Valued’, CNBC (Sept. 25, 2025), https://perma.cc/X5CN-LQXU.
• See Michael Stratford, Trump Administration Considers Sale of Federal Student Loan Debt, Politico (Oct. 7, 2025), https://perma.cc/9V7T-8Y7M.
• See Annie Nova, Biden made it easier for student loan borrowers in bankruptcy. This woman, who thought it was a joke, got $158,182 cleared, CNBC (June 12, 2024, 10:54 AM),  https://perma.cc/PK67-8EDM.
• See Van Spina, supra note 15, at 5; see also Tim Hall, Part of Our Series on The History of Private Credit Investing, Percent (Sept. 12, 2022), https://perma.cc/3WRT-2N9K.
• See Chen et al., supra note 21, at 6.
• Id.; see also Glenn S. Arden, Michael R. Butowsky, & George J. Cahill, Volcker Rule Covered Fund Amendments Provide Clarity and Opportunities, Jones Day (Jul. 14, 2020), https://perma.cc/9LTS-5U3Y.
• Id.
• See Thomas J. Friedmann & Kenneth E. Young, Private Credit and Traditional Banks Forge a New Path, Dechert LLP (Apr. 16, 2024), https://perma.cc/C8KU-3UMG.
• See Dellart, supra note 7, at 2.
• See U.S. Dept. of the Treas., A Financial System That Creates Economic Opportunities Nonbank Financials, Fintech, and Innovation, (Jul. 2018); see also 12 U.S.C. § 1851(h)(4) (defining proprietary trading), with § 1851(d)(1)(B) (defining the market-making exception).
• See Michael Leonidas Nester, Reconciling the Volcker Rule with the Dodd-Frank Act’s Objectives: How to Best Combat Systemic Risk, 86 Ford. L. Rev. 3059, 3086-87 (2018); see also, Paul L. Lee, Gregory J. Lyons, & Satish M. Kini, The Volcker Rule: An Overview, Debevoise & Plimpton, (Dec. 13, 2013), https://perma.cc/83V3-99DA.
• See Jason M. Daniel, Brian T. Daly, Barbara Niederkofler, & et al., Cross Trades and Principal Transactions – New SEC Guidance for Private Fund Managers, Akin (Aug. 3, 2021), https://perma.cc/WQ2D-D6Y5.
• Real Estate Activities Under the Frameworks of Bank Holding Company Act: Limits and Opportunities, Goodwin, https://perma.cc/ZTW2-VG56 (last visited Jan. 31, 2025).
• See Wessel, supra note 94, at 17.
• Id.; see also Press Release, Fed. Deposit. Ins. Corp., Agencies Request Comment on Proposed Rules to Strengthen Capital Requirements for Large Banks (Jul. 27, 2023) (on file with Board of Governors of the Federal Reserve System).
• See Henry Engler, US Bank Regulation Under Trump: Basel in Doubt, Digital Assets Rise & Consumer Setbacks Expected, Thomas Reuters Regulatory Intelligence (Nov. 15, 2024), https://perma.cc/APN8-UCJV.
• See Wessel, supra note 94, at 17.
• See Srinivasan & Huther, supra note 34, at 7.
• See Wessel, supra note 94, at 17.
• See Pete Schroeder, How Small businesses became Goldman Sachs allies to fight Washington regulations, Reuters (May 16, 2024), https://perma.cc/TK7X-636F;see also Robert Kuttner, The Bankers’ Front Groups Fighting Tougher Capital Rules, The American Prospect (Jan. 30, 2024), https://perma.cc/N8BS-ZB8G.
• Id.
• Id.
• See Mayra Rodriguez Valladares, Newly Proposed U.S. Banking Rules Would Not Reduce Lending, Forbes (Sept. 22, 2023), https://perma.cc/RN37-2ZL3.
• See Wessel, supra note 94, at 17.
• See Fang et al, supra note 53, at 10.
• See Adler et al., supra note 36, at 8.
• See Laura Ferrell et al., SEC Adopts Changes to Form PF for Private Equity and Large Hedge Fund Advisers, Latham & Watkins (May 18, 2023), https://perma.cc/TM25-PN8V.   
• See Victoria S. Forrester et al., SEC Adopts Amendments to Form PF for Private Equity and Hedge Fund Advisers, Paul Weiss (May 16, 2023), https://perma.cc/KPV9-Y8PH.
• See Adler et al., supra note 36, at 8.
• See Colleen Hongsberg, Disclosure Versus Enforcement And the Optimal Design of Securities Regulation 33 (Colum. Bus. Sch., Rsch. Paper 15–58).
• Id.
• See Philip T. Hinkle, Audrey Wagner, Mark D. Perlow, and Ashley N. Rodriguez, SEC Adopts New Rules and Amendments to Update the Approach to the Regulation of Registered Funds’ and BDCs’ Use of Derivatives and Other Transactions, Dechert LLP (Oct. 2020), https://perma.cc/MD5N-ASSX.
• Id.
• See Hinkle et al., supra note 145, at 29.
• Id.
• See Greg Daugherty, Julius Mansa, & Yarilet Perez, National Association of Insurance Companies (NAIC) Defined, Investopedia (Jul. 18, 2022), https://perma.cc/NK9K-CDY9.
• See Investments in Medium and Lower Grade Obligations Model Regulation, NAIC Model Law No. 340 (1997).
• See Holly Monroe, Insurance 101: Understanding NAIC Model Laws, AgentSync (Mar. 27, 2023), https://perma.cc/8895-XEJT. 
• See 15 U.S.C.A. § 78g (West), see also 15 U.S.C.A. § 80a 1-64 (West).
• See Elvis Picardo & Erika Rasure, Regulation W: Definition in Banking and When It Applies, Investopedia (Jun. 29, 2022), https://perma.cc/S4UQ-LU29.
• Id.
• See Baxter Wasson & Rodrigo Trelles, The Critical Role of Covenants in Private Credit, UBS Asset Management (Sept. 13, 2024), https://perma.cc/G9B7-ZHRZ.
• See Vincent S.J. Buccola and Greg Nini, The Loan Market Response to Dropdown and Uptier Transactions, 53 J. of Legal Studies, 489, 495, (2024).
• Id.
• See Tony Cappell, Covenant-Lite: A Historical Cautionary Tale, Chicagoatlantic (Mar. 11, 2024), https://perma.cc/2ZZW-QWV2.
• See Van Spina, supra note 15, at 5.
• See Odd Lots, supra note 12, at 4.
• See Fang et al, supra note 53, at 10.
• See Dellart, supra note 7, at 2.