The Cockroach Warning and the Garbage Lending

Jamie Dimon seldom minces words, and last month was no exception. Surveying the explosive rise of private credit, now larger than the United States’ high-yield bond market, he offered a blunt warning that when one cockroach appears, more are usually hiding.

“Bond King” Jeffrey Gundlach reached for an even darker metaphor. The canaries in the coal mine, he warned, were already starting to fall, signalling that large pockets of the $3 trillion private credit universe had slipped into what he called garbage lending, with stress building beneath the polished surface of a rapidly expanding asset class.

Their alarm is not idle as private credit, once a niche corner of finance, has multiplied nearly tenfold in a decade, and is expanding far faster than traditional bank lending. Yet, it operates with only a fraction of the oversight imposed on banks.

The world’s most seasoned financial leaders are asking a basic question: Has private credit become the next blind spot in global finance?

The deeper question is how the world’s financial plumbing evolved in a way that allowed such a blind spot to form. To answer that, the focus must shift from private credit alone to banks and the modern economy they increasingly struggle to serve.

Strong Banks, Narrow Vision
Post-2008 financial crisis reforms achieved what they intended: banks became safer. Capital rose, liquidity buffers thickened, leverage was curbed, and stress tests became central to supervision, a clear gain for depositors and taxpayers.

Yet in tightening the bolts, regulators also locked banks more firmly into a traditional lending model centred on tangible, collateral-backed assets such as buildings, machinery, and inventory. The types the Basel rulebook knows how to measure, value, and liquidate.

This model worked perfectly for the industrial economy, but is a poor fit for the knowledge economy.

Over the past two decades, the world’s most valuable companies have become intensely intangible, with their worth tied to intellectual property, algorithms, data, software, brand equity, and deep research and development capabilities. These are the assets that now define global competitiveness.

But accounting standards typically expense these investments. Regulators generally ignore them. And banks, supervised to be conservative, cannot lend against what they cannot reliably value and are constrained by accounting rules. A biotech firm with a promising molecule can look “asset-poor”, a SaaS platform with 95% renewal rates appears “collateral-light”, and a semiconductor design studio packed with engineering talent is “unsecured risk.”

The result is that the engines of modern growth are structurally mismatched with the institutions designed to finance them.

This is not because banks are unimaginative. It is because banks are custodians of public deposits. They are required and, rightly so, to avoid high-loss, high-volatility credit exposures.

But the economy still needs capital. And when banks cannot lend, someone else will.

Quiet Reordering
As banks stepped back from intangible-heavy sectors, private equity and venture capital stepped forward. They took on risks that banks legally and prudently could not, underwriting innovation, scaling new technologies, and designing financial structures tailored to emerging business models.

And then came private credit, filling the debt gap for companies that were too mature for venture capital but too intangible for banks. In many ways, this migration was efficient. Innovation was funded; growth companies found capital and banks stayed safe.

But it also transformed the financial landscape in ways regulators did not fully anticipate.

Today, we live in a dual-speed financial system with banks, which are heavily supervised, cautious, and collateral-oriented, and private credit, which is lightly regulated, opaque and increasingly systemic.

It is this structural shift that makes Dimon’s and Gundlach’s warnings so resonant.

Because risk has not disappeared; it has simply moved outside the perimeter of formal regulation.

Private credit’s appeal is clear: tailored loans, flexible terms, rapid execution, and an ability to underwrite businesses based not on factories or real estate, but on cashflows, software subscriptions, or projected royalties.

Yet the very features that make private credit attractive also make it risky since leverage levels are often opaque, valuations are internally marked, underwriting standards vary widely, investor liquidity is mismatched with asset liquidity, and concentration risk is building within a handful of global managers.

This market now exceeds the size of US junk-bond markets. But unlike junk bonds, it has no public disclosures, no transparent pricing, no uniform covenants, and no supervisory lens.

Hence the metaphors —cockroaches in the kitchen; canaries collapsing in the mine.

These warnings are not about imminent collapse. They are about visibility, or the lack of it.

Protect the Past
The rise of private credit is not simply a story of innovation in finance. It is a consequence of a regulatory system optimised for an economic structure that no longer exists.

Here is the deeper chain reaction. The economy became intangible-heavy while Basel rules kept banks tied to tangible collateral. Banks, for good reasons, avoided lending to high-uncertainty sectors. In that milieu private equity and venture capital funded early growth and private credit emerged to fund the middle and late stages.

Now the worry is that risk has migrated from highly regulated banks to lightly regulated private vehicles.

We did not build a safer system; we built a bifurcated one.

The world’s innovation is increasingly financed in ways regulators cannot easily monitor, while the institutions regulators watch most closely finance the sectors that innovate least.
This is the real blind spot.

Balancing this system is a dilemma with no simple resolution.

Banks must protect depositors. Their conservatism is not a flaw; it is a feature.
But the global economy cannot thrive if its most dynamic sectors rely exclusively on opaque, unregulated channels.

We do not need banks to become venture capitalists. We do not need private credit to become regulated like banks. But we do need to rethink the architecture of financial intermediation for an age where ideas, not factories, drive value.

Policymakers across the world are beginning to explore paths that balance safety with access:

Recognising and Valuing Intangible Assets: Frameworks to standardise the valuation of IP, software, R&D, and data could allow banks to lend more pragmatically.

Expanding Cashflow-Based Lending in the Banking Sector: Subscription metrics, revenue retention, and unit economics can complement traditional collateral assessments.

Improving Transparency in Private Credit: Not heavy regulation but minimum visibility on leverage, exposures, and asset quality.

Building Public–Private Co-Lending Platforms: Allow banks and private credit to share risk intelligently, rather than operate in silos.

Specialised Banks
Institutions modelled on KfW or DBJ can fund high-growth firms that banks cannot safely support. These steps will not eliminate risk. But they will ensure that risk does not accumulate unseen. Maybe we can look back at developmental financial institutions once again.

The warnings from Dimon and Gundlach matter not because a crisis is imminent, but because they highlight a truth we have ignored: in making banks safer, we may have made the rest of the system more fragile by pushing innovation financing outside the line of sight.

Private credit is not the villain. Banks are not the culprits. Regulators are not asleep.

But the architecture we built after 2008 may be optimised for a world that no longer exists.

The question is whether we can redesign it before the cockroaches multiply or the canaries stop singing altogether.