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

A risk analyst at a pension fund reviews the post-2008 growth of private credit. Which macro-financial development is most commonly cited as a global driver that pushed institutional investors toward private credit?

The low-interest-rate environment after the global financial crisis is a key driver of private credit growth. Compressed yields on traditional fixed income pushed institutional investors to search for yield, and private credit offered higher spreads and illiquidity premia.

  1. AA prolonged period of low interest rates that increased the search for yieldCorrect
  2. BA sustained rise in bank trading-book capital charges that was fully reversed by 2015
  3. CA permanent ban on non-bank lending to mid-sized firms
  4. DA sharp decline in demand for corporate borrowing from all firm sizes

Explanation

Low policy rates and compressed yields on public bonds led investors to seek higher illiquidity-premium returns, and private credit offered them. The other options are either factually wrong or contradict the observed growth of non-bank lending.

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