The meteoric rise of private credit over the last decade has raised concerns among banks about unfair competition and among regulators about risks to financial stability.

Historically, regulated banks have provided most of the credit that finances businesses in the United States. However, since the 2008 financial crisis, banks have restricted their credit lines in response to new regulations. In their place has arisen private credit, which comprises direct (and mostly unregulated) lending, primarily from institutional investors. Estimates peg the current size of outstanding private credit loans in the U.S. at $1.7 trillion.

Private credit loans aren't traceable, and there are incentives to lend to riskier borrowers in the absence of regulation. This could lead to catastrophic spillover effects in the event of a financial shock. This week, Bethany and Luigi sit down with Jim Grant, a longtime market and banking industry analyst, writer, and publisher of Grant's Interest Rate Observer, a twice-monthly journal of financial markets published since 1983. Together, they try to answer if private credit is in the public interest.

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