Credit Has Two Sources – And the World Depends on Both

Credit is the quiet force powering modern life. It finances everything from the infrastructure we walk on to the electricity we use, the AI systems we increasingly rely on, and the mortgages that put roofs over our heads. To call it the lifeblood of the economy is no exaggeration.

A healthy, functioning economy depends on a constant flow of credit. It smooths shocks, fuels innovation, expands what households and businesses can achieve, and enables long‑term investment that cash alone could never support. And today, the demand for credit is enormous – and only growing.

Massive Capital Needs¹, Long-Term Horizons

The global economy is in a period of rapid industrial, technological, and geopolitical transformation. The capital required is staggering:

• US$30–50 trillion for energy infrastructure
• US$30 trillion for power and utilities
• US$15–20 trillion for digital infrastructure
• US$10–15 trillion for defence
• US$3–5 trillion for next‑generation manufacturing

These are long-term projects with long-term payoffs – and they require long-term credit. If that financing is delayed, withheld, or constrained, progress slows. If it’s withdrawn, progress can stop altogether.

Credit makes the future possible. And to understand where it is heading globally, we need to study the U.S. market.

Where Does Credit Come From? Two Places.

Credit in every economy is sourced from one of two channels:

1. Banks, or
2. Investors

There is no real alternative.

Historically, banks dominated. But since the Global Financial Crisis and the passage of Dodd-Frank regulation in response, credit provision has materially shifted from banks to investors ².

Why the shift in the U.S.?

Because banks operate with demand deposits, which must be returned at par, on request. During the GFC, that model showed its limits.

Investors, by contrast, operate through capital markets:

• They may use long‑dated funding matched to long‑duration assets
• They may accept the risk and reward of the investment
• They may be better equipped to hold through credit cycles

This shift has strengthened the U.S. banking system, which was the objective of regulation:

• U.S. Tier 1 capital improved from 12% (2009) to 16% (2024)³, and
• U.S. banks now have cleaner balance sheets, more capital, and a clearer focus – short-term, high-quality financing

As a result, U.S. banks are stronger – or better capitalised- , while at the same time, investors have become the dominant force in long-term lending in the U.S. Together, they form the two primary sources of credit that fund the economy The Rise of Private Credit – And Why It Matters

With banks stepping back from long-dated lending, private credit has stepped forward. And this has caused a wave of commentary, misunderstanding, and in some cases, unwarranted alarm.

To understand what’s really happening, Australians need to look to the United States – the world’s most advanced capital market and the epicentre of private credit.

A $51 Trillion Credit Market²

In the US:

• US$51 trillion credit market
• Only US$11 trillion is public
• The remaining US$40 trillion is private
• Of this, just US$2 trillion is “levered lending,” split equally between broadly syndicated loans and direct lending

This is the segment that has attracted the headlines – despite being a tiny fraction of total credit.

Is Private Credit Risky? The Facts Say Otherwise.

The data tells a compelling story:

• Private credit has not amplified systemic risk
• It has shifted long-dated exposures away from leveraged banks to institutional investors with the ability to hold through cycles
• Loss rates in private leveraged lending have been multiples lower than equities and lower than public high‑yield bonds across stress periods

Moreover, well‑underwritten direct lending comes with:

• Full due diligence
• Secured positions
• Better documentation control and protections
• Greater spread premiums

Direct lending isn’t a shadow banking system. It’s simply another form of investment – structured, secured, and held by investors who choose the risk/return profile.

Why Australians Should Care

Australia’s financial system is bank-heavy – far more concentrated than the US. But the global shift from bank credit to investor credit is not going away.

Looking to the US is not optional; it’s essential. America leads the world in capital-market depth, private company formation, and private credit sophistication:

• US public companies have halved since 1996
• 86% of companies with US$100m+ revenue are private²
• Private companies drive the bulk of employment and economic activity

Private credit is, simply, how modern economies finance long-term growth.

A New Credit Reality

Credit primarily comes from banks or investors. That fundamental truth won’t change.

What has changed is who provides the credit that fuels long-term progress – and, arguably, the world is better for it. Banks are stronger. Investors are more involved. And capital is flowing to the places where it can drive the greatest impact.

For Australia, understanding private credit isn’t a curiosity – it’s a strategic imperative. Because in a world defined by massive investment needs and constrained public balance sheets, credit is not just important. It is everything.