Key Takeaways
- • The Center for American Progress urges Congress and regulators to act before private credit risk becomes a crisis, recommending limits on private markets in 401(k) plans, expanded disclosure requirements, and new reporting to the Federal Reserve.
- • The report recommends excluding private credit and other alternative investments from most 401(k) plans and keeping fiduciaries fully liable, opposing a safe harbor proposed by the Trump administration.
- • As of Q2 2026, nearly 10 percent of debt investments by the largest BDCs were tied to distressed borrowers, according to the report.
- • U.S. bank loans to nondepository financial institutions reached $1.2 trillion as of June 2025, with about $300 billion going to private credit providers, up from roughly $10 billion in 2013.
- • FSOC data cited in the report show default rates of 5.5 percent for companies with private credit loans in Q2 2025, versus 3.8 percent for leveraged loans and 1.3 percent for high-yield bonds.
Summary
The Center for American Progress published the final part of a three-part series on private credit risks, arguing that U.S. regulators should detect and address the buildup of risk early rather than waiting for a crisis. The piece focuses on steps Congress and regulators can take to protect retirement savers, insurance policyholders, bank depositors and the broader financial system.
On retirement savings, the report contends that private credit and other private investments, often called alternative investments, should be excluded from or remain an extremely limited option for most 401(k) plans. It argues that business development companies (BDCs), which Congress created to channel capital to small and midsize private companies including through retail investors, are typically high-risk and unsuitable for most 401(k) participants. The report also calls on Congress to keep plan managers and advisers fully liable for fiduciary breaches, opposing a safe harbor proposed by the Trump administration.
On disclosure, the report says private credit funds offering shares to ordinary investors should provide full information on portfolio company valuations, fees including incentive fees, and redemption restrictions. It notes that the SEC requires public and nontraded BDCs to make many such disclosures but does not require the same of private BDCs and other private credit funds, which can rely on Regulation D exemptions. Proposed remedies include requiring compliance with Form N-2 filing rules or prohibiting such funds from offering shares to ordinary investors. The report also suggests state insurance regulators require public disclosure of private credit ratings underpinning insurers' capital requirements. It cites concerns following defaults among certain private credit portfolio companies in 2025 and the exposure of software company loans to artificial intelligence disruption, with many such loans maturing by 2029.
On systemic oversight, the report argues regulators have blind spots as private markets grow. It recommends that banks provide more detail on private credit fund linkages in quarterly call reports, and that private credit funds of all sizes confidentially report quarterly to the Federal Reserve, with more extensive requirements for funds with $10 billion or more in assets. It cites the 2010 Dodd-Frank Act's creation of the Financial Stability Oversight Council and notes that the Fed must update its financial accounts to close gaps in its view of the system.
On retirement savings, the report contends that private credit and other private investments, often called alternative investments, should be excluded from or remain an extremely limited option for most 401(k) plans. It argues that business development companies (BDCs), which Congress created to channel capital to small and midsize private companies including through retail investors, are typically high-risk and unsuitable for most 401(k) participants. The report also calls on Congress to keep plan managers and advisers fully liable for fiduciary breaches, opposing a safe harbor proposed by the Trump administration.
On disclosure, the report says private credit funds offering shares to ordinary investors should provide full information on portfolio company valuations, fees including incentive fees, and redemption restrictions. It notes that the SEC requires public and nontraded BDCs to make many such disclosures but does not require the same of private BDCs and other private credit funds, which can rely on Regulation D exemptions. Proposed remedies include requiring compliance with Form N-2 filing rules or prohibiting such funds from offering shares to ordinary investors. The report also suggests state insurance regulators require public disclosure of private credit ratings underpinning insurers' capital requirements. It cites concerns following defaults among certain private credit portfolio companies in 2025 and the exposure of software company loans to artificial intelligence disruption, with many such loans maturing by 2029.
On systemic oversight, the report argues regulators have blind spots as private markets grow. It recommends that banks provide more detail on private credit fund linkages in quarterly call reports, and that private credit funds of all sizes confidentially report quarterly to the Federal Reserve, with more extensive requirements for funds with $10 billion or more in assets. It cites the 2010 Dodd-Frank Act's creation of the Financial Stability Oversight Council and notes that the Fed must update its financial accounts to close gaps in its view of the system.
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