Private credit firms are facing a major test, with mom-and-pop investors pulling their cash in fear of corporate defaults spiking and artificial intelligence destroying many of the software businesses that these funds have lent to. After years of explosive growth, the industry has another challenge looming: A fightback from banks that’s being encouraged by US regulators.

Helping banks compete by loosening capital rules so they can go back to holding more kinds of debt on their balance sheets may make sense when it comes to safe mortgages, or loans to high-quality companies and projects. But any return to the days when ordinary depositors were directly exposed to highly indebted private-equity buyouts would be a bad move. US rule makers should cool their fever for deregulation. The UK plan to hunt out systemic vulnerabilities through a new kind of stress test is a much better way to improve transparency and protect the economy.

© Bloomberg