After the 2008 global financial crisis, regulators took action to limit the buildup of risk in the banking system. But that risk appears to have migrated elsewhere: as new regulations, from Basel III to the Volcker Rule, raised the costs for banks of extending leveraged loans, non-bank lenders rushed to take over some of banking’s riskier activities. As a result, the private-credit market surged from $158 billion in 2010 to as much as $3.5 trillion today.
After the 2008 global financial crisis, regulators took action to limit the buildup of risk in the banking system. But that risk appears to have migrated elsewhere: as new regulations, from Basel III to the Volcker Rule, raised the costs for banks of extending leveraged loans, non-bank lenders rushed to take over some of banking’s riskier activities. As a result, the private-credit market surged from $158 billion in 2010 to as much as $3.5 trillion today.