Skip to content

FRM Part II · FRM Exam Part II · The Global Drivers of Private Credit

A research team studies why private credit has expanded across countries. They find that, holding other factors constant, private credit grows faster in economies where a larger share of corporate borrowers are mid-sized firms with limited access to public bond markets. Which interpretation best fits a demand-side driver of private credit?

Mid-sized firms often cannot access public bond markets economically, so they demand bespoke loans from direct lenders. This borrower-side need for flexible, relationship-based financing is a demand-side driver of private credit, unlike bank regulation or lender supply factors.

  1. AMid-sized firms prefer bespoke, relationship-based loans from non-bank lenders because they cannot readily tap public markets or face high issuance costsCorrect
  2. BBanks face lower risk-weights on loans to mid-sized firms, so they originate more of them directly
  3. CRegulators require mid-sized firms to borrow only from non-bank lenders
  4. DMid-sized firms hold excess deposits that are intermediated by private credit funds

Explanation

Borrowers that lack scale for public bond or broadly syndicated loan markets seek tailored financing from direct lenders. This is a demand-side channel. The bank risk-weight option describes a supply or regulatory channel, and no rule forces such firms into non-bank credit.

Did you get it right without looking?

One question tells you little. A timed set on The Global Drivers of Private Credit shows your real accuracy, how long you take and where you lose marks.

Practise The Global Drivers of Private CreditFree diagnostic mock

More The Global Drivers of Private Credit questions