To the editor,
Former Comptroller of the Currency Eugene Ludwig wants private credit funds regulated like banks, arguing that the industry's lack of capital requirements, stress tests and other tough regulations is akin to a "Get Out of Jail Free" card. (
There are a few essential details to keep in mind when it comes to regulating private credit funds. They do not take deposits, they do not provide checking accounts or savings accounts, and they do not rely on the public's confidence in insured deposits to fund their operations. They operate with investor capital committed for multiyear periods, and if a fund fails, its investors who bear the loss — not the public. They also do not have daily liquidity or run risk. In fact, funds have the ability to put up gates to ensure orderly redemptions at predetermined intervals.
These are fundamental distinctions from banks, which benefit from FDIC insurance and access to the Federal Reserve's discount window because they have a critical role of safeguarding deposits and underpinning the payments system. Those responsibilities rightly come with stringent regulations to protect taxpayers, including capital requirements that ensure deposit holders have access to liquidity when they want their money back.
Applying banklike rules to private credit funds would not make the financial system safer. It would, however, choke off credit to businesses, curtail hiring and harm the broader economy. Pension funds, foundations and other institutional investors — key beneficiaries of private credit — would also be impacted, threatening investment returns that support retirees and charitable missions.
Ludwig's call for "same activity, same size, same regulation" ignores the reality that private credit funds are appropriately regulated by the SEC; have stable, committed capital; and pose no systemic risk. Imposing bank-style oversight on them would be a solution in search of a problem — one that harms growth, investment and the very people policymakers aim to protect.
