SEC Commissioner Peirce Urges Calm and Caution on Regulation of Private Credit

SEC Commissioner Hester M. Peirce argued that fears around the rapid expansion of the private credit markets are exaggerated. She advocated for a balanced approach to understanding the risks and benefits of private credit without resorting to overregulation.

In an address before the SIFMA/Mayer Brown Private Credit Forum, Commissioner Peirce described private credit, which is not subject to registration under the Securities Act, as a beneficial and efficient form of finance. She said private credit provides many advantages: including: (i) offering an alternative to traditional bank loans and public bonds and greater flexibility for corporate financing; (ii) customizable loan structures tailored to meet the needs of both lenders and borrowers; and (iii) shorter underwriting timelines and greater privacy for borrowers compared to public market options.

Commissioner Peirce acknowledged that private credit poses additional risk, including: (i) an opacity of valuations due to the lack of a secondary market; (ii) the relative riskiness for borrowers, especially in times of economic downturns; and (iii) regulatory gaps as private credit funds operate outside of traditional bank supervision.

Commissioner Peirce argued against rushing to impose new regulations on private credit markets, saying that existing regulatory tools and market discipline are sufficient to manage the risks. She emphasized the importance of allowing private credit to grow without stifling its flexibility, which has allowed it to fill important gaps left by banks, and warned that overregulation could stifle the sector's dynamism and deprive small businesses seeking capital.