June 25, 2026BlogCommissioned Report
Leverage drives the economy. It’s time we understand it better.
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Private Credit Strengthens Financial Stability, New Research Shows
Private credit is recognized as important to the global economy, including by financial regulators and central bankers. It provides an alternative source of financing for businesses of all kinds—something that was emphasized in a recent report from the Financial Stability Board, whose members include the Federal Reserve, the Bank of England and the European Central Bank.
But has private credit’s rapid growth also made the financial system safer? New research from academics at Dartmouth’s Tuck School of Business and the Frankfurt School of Finance and Management suggests that it has. The researchers found private credit strengthens financial stability by stepping up when banks and other traditional lenders pull back, keeping capital flowing when it’s needed most.
The study offers an important perspective at a time when policymakers around the world are paying close attention to private credit.
A Market Too Large to Ignore
The private credit market, as defined in the Dartmouth and Frankfurt School paper, grew from roughly $1 trillion in 2020 to nearly $2 trillion by 2024, with projections indicating the market may be as large as $5 trillion by the end of the decade. That puts the asset class on par with both the $1.4 trillion leveraged loan market and the $1.3 trillion high-yield bond market. By the end of the study’s sample period, private credit was originating more annual deals to finance businesses than the broadly syndicated loan market, and its share of total company borrowing had climbed from about 20% in 2008 to nearly 80% by 2024. At this scale, private credit is now a foundational source for how companies access capital.
That scale matters because corporate borrowers actively move between different funding markets. The research shows that 27% of firms have borrowed from both the private credit and leveraged loan markets, and 15% have switched back and forth multiple times. This overlap has grown, meaning that the pool of companies capable of tapping either market is deeper than ever. Borrowers don’t forgo financing when syndicated lending conditions tighten. They shift to private credit.
Dampening Shocks, Not Amplifying Them
The study finds a strong and consistent relationship between tighter conditions in the leveraged loan market and increased borrower migration toward private credit. This pattern holds across every major stress episode over the past two decades, including the global financial crisis, the 2015–2016 oil price collapse, and the COVID-19 shock. Crucially, this substitution is driven primarily by mid-market companies with strong financial backing and established relationships across credit markets, not distressed borrowers with nowhere else to turn.
An important feature of this lending is that private credit made smaller loans to a broad group of borrowers, rather than concentrating exposures among a subset of the same borrowers. This signals private credit funds managed risks while extending financing to a wider range of businesses.
The implication for financial stability is significant. Firms can pivot to private credit when the syndicated loan market, which is cyclical and prone to freezing, dries up. This helps prevent disruptions in credit supply from spilling over into the real economy. The authors test this idea against eight well-established measures of credit availability and find consistent results. Private credit absorbs displaced borrowers, potentially stabilizing corporate investment and employment over the economic cycle.
A Global Phenomenon
These dynamics are not unique to the United States. The authors find similar results when they replicate their analysis using European deal data and measure from the ECB Bank Lending Survey. Tighter bank lending conditions and elevated financial risks push deal flow toward private credit in Europe just as they do in the U.S. The core mechanism is the same across regions: when syndicated credit pulls back, private credit acts as a shock absorber. The relative importance of specific channels varies, but the pattern holds.
The Bottom Line
The data show that private credit markets make the broader financial system more resilient by providing an alternative source of financing that expands precisely when traditional channels contract. Rather than amplifying financial stress, private credit has consistently acted as a stabilizing force, keeping businesses funded, investment flowing, and the economy moving through some of the most turbulent periods of the past two decades.
