Originally published on Substack. 

The latest panic over private credit is getting awfully familiar. A few funds hit redemption limits, some software-heavy loans wobble, and suddenly the political class and much of the media reach for the same tired script: shadow banking, hidden risk, time for Washington to step in.

Recent coverage has focused on investor withdrawals, pressure on software-related loans, and worries that private credit is having a “wake-up call.” But a wake-up call is not a funeral. Volatility is not the same thing as systemic collapse.

Markets Filling a Gap

Private credit did not appear out of nowhere. It grew because traditional banks pulled back from parts of the lending market, especially for middle-market firms that still needed capital but did not fit neatly into the old bank model.

A Federal Reserve note estimates U.S. private credit totaled about $1.34 trillion by mid-2024 and had grown roughly fivefold since 2009. That is not evidence of market failure. It is evidence that markets adapt when demand exists and legacy institutions cannot or will not meet it.

That is also why I agree with Steve Moore’s recent commentary. His point is straightforward: private credit can strengthen financial stability by diversifying lending away from government-backed banks and by allowing sophisticated private investors to fund projects directly rather than forcing more activity through taxpayer-exposed institutions.

He argues we need more of this financing, not less, especially if America wants to fund the industries of tomorrow without asking Washington to play venture capitalist. He is right.

Not a Replay of 2008

The 2008 financial crisis centered on a fragile banking system loaded with leverage, maturity mismatch, opaque securitization, and deposit-funded institutions vulnerable to panic.

Private credit is structured differently. In general, investors, not ordinary depositors, are taking the risk, and much of the funding is longer-term than the runnable liabilities that helped turn stress into crisis in 2008.

The Federal Reserve’s analysis says immediate financial-stability risks from private credit vehicles appear limited, in part because leverage is moderate and funding is more long-term. It also found that large U.S. banks appear sufficiently capitalized and liquid to absorb a significant drawdown scenario tied to private credit lines.

That does not mean there are no risks. It means the risks are different.

Liquidity Is Not a Scandal

What we are seeing now looks much more like a liquidity-design and valuation issue in certain semiliquid funds than a systemwide panic.

Reuters reported that Apollo Debt Solutions limited quarterly withdrawals to 5 percent after redemption requests reached 11.2 percent of shares. Reuters also noted that these vehicles typically disclose those redemption limits up front. Investors may not like that when markets sour, but disclosed liquidity terms are not a scandal. They are the contract. Illiquid assets are not supposed to behave like checking accounts with better branding.

That is where too many critics lose the plot. They see redemption caps and assume that government must ride in on a white horse. But if a fund misprices liquidity, let investors punish it. If managers overexpose themselves to a shaky sector, let returns suffer and capital leave. That is not market failure. That is the market doing its job.

Profit and Loss Still Matter

This is the part that defenders of regulation never seem to grasp. A market does not prove its worth by never making mistakes. A market proves its worth by revealing mistakes, pricing them, and reallocating capital away from bad decisions and toward better ones.

Prices move. Assets get marked down. Weak underwriting gets exposed. Managers who made bad bets get punished. Investors who ignored the fine print discover that they should not have. None of that requires a federal rescue squad. It requires adults taking responsibility for risk. That is what free markets demand.

And this is exactly why new taxes and regulations would be the wrong response.

Politicians love to take a contained market correction and convert it into an excuse for broader control. A few funds run into trouble, and suddenly the answer is more red tape for everyone. That would not make the market healthier. It would only reduce options, protect incumbents, and make capital formation harder for businesses that already struggle to find financing through traditional channels.

More Choice, Better Markets

Private credit serves a real economic purpose. It offers speed, flexibility, and customized financing for firms that are often too large or too specialized for community banks yet not natural fits for the broadly syndicated loan market. That broader menu of options matters.

A dynamic economy should not force every borrower into one approved lane any more than it should force every saver into one approved product.
This is not some moral defense of every lender or every loan. Some funds will do dumb things. Some managers will get punished. Some investors will find out the hard way that yield comes with risk. Good. That is how markets learn.

The real danger is not that private credit exists. The real danger is that Washington will use a messy but manageable period in one corner of the market as an excuse to shrink consumer and business choice across the board.

That would be backward.

Better Instinct

The instinct here should be that private credit fuel America’s future, not become the next excuse for bureaucratic mission creep. Diverse private financing can disperse risk more broadly and reduce dependence on the same government-backed banking model that critics claim to distrust.

If America wants to lead in the industries of tomorrow, startups and growth firms need access to capital, and the government should not be the one picking winners and losers.

Capital should come from investors willing to bear risk, not from bureaucrats pretending they can do venture allocation better than markets can.

The Bottom Line

Private credit is not 2008.

It is a market response to real demand. It is one more way businesses can get financed, investors can allocate capital, and markets can adapt when older institutions pull back. It deserves scrutiny, but not caricature. It deserves discipline through profit and loss, not panic-driven regulation or new taxes.

If private credit funds make bad decisions, let the market discipline them. If they make good decisions, let them grow. That is how a free economy works.

And yes, that means letting markets get messy sometimes. I trust that process a lot more than I trust Washington chasing headlines.

Three Takeaways for Policymakers

1. Protect choice in credit markets.

More financing options for businesses and investors make the economy more resilient, not less.

2. Let profit and loss do the disciplining.

Bad underwriting, poor liquidity design, and weak sector bets should be punished by markets, not socialized by government.

3. Do not confuse volatility with systemic collapse.
​
Redemption limits and repricing in semiliquid funds are not the same thing as a 2008-style banking panic.

​The latest economic data tells a concerning story.

From a weakening labor market and rising healthcare costs to slowing growth and increased uncertainty, the warning signs are becoming harder to ignore. These trends are not accidental. They are the result of policy choices that have expanded the government’s role, distorted incentives, and increased complexity across key sectors of the economy.

In this episode of This Week’s Economy, we examine how these forces are playing out across jobs, Medicare, regulation, trade, and tax policy—and why they all point to the same conclusion: policy matters, and bad policy carries real costs.

The critical question is whether leaders will course-correct before these challenges deepen.

👉 Watch or listen to the full episode and explore more analysis with show notes at vanceginn.substack.com.

Originally published at DC Journal on Inside Sources. 

President Trump just tossed a political match into a financial tinderbox: the fight over whether crypto platforms can pay “interest-like” rewards on stablecoins while banks are stuck playing by bank rules. 

In a late-night post, Trump blasted banks for “undermining” the stablecoin framework and urged them to cut a deal with crypto, turning a technical policy dispute into a White House priority.

The trouble is that the “deal” being floated isn’t free-market competition. It’s a regulatory workaround that tilts the playing field and risks draining deposits that fund real-world lending.

Stablecoins can be genuinely useful. As a payments tool, a well-run, fully redeemable stablecoin can reduce settlement and exchange frictions. The GENIUS framework was supposed to keep stablecoins in that payments lane, not turn them into deposit accounts wearing a crypto costume.

The current fight is about yield, and yield changes everything. Federal Reserve Vice Chair of Supervision Michelle Bowman recently testified before the Senate Banking Committee that banks should have more flexibility when competing with non-banks.

Here’s the core problem: the law says stablecoin issuers can’t pay interest, but it leaves room for exchanges and affiliates to pay “rewards” on stablecoins held on-platform. That’s not a loophole around the edges; it’s a tunnel under the whole policy.

The Bank Policy Institute has been warning about this for months: if intermediaries can pay interest-like returns, the prohibition becomes “easily evaded,” and stablecoins become a direct substitute for bank deposits without being regulated like deposits.

According to a report on the push, advocates are urging Congress to close the stablecoin “backdoor,” citing a Treasury estimate that as much as $6.6 trillion in deposits could shift if stablecoin rewards persist. Deposits are the oxygen supply for community lending: mortgages, small business credit, and agricultural finance. Pull the oxygen out and don’t be shocked when the patient gets woozy.

This is where the economics gets ignored in favor of shiny slogans like “Americans should earn money on their money.” Sure. But how do they earn it? Interest isn’t a magic gift. It’s a price that coordinates resources.

Historically, warehousing and finance evolved together. People stored valuable goods (think grain), and over time, warehouse receipts became tradable claims. When stored value could be pooled, relied on, and put to productive use, returns emerged.

Modern banking is the grown-up version: banks pay interest because deposits fund lending and liquidity services, and because banks operate inside an expensive regulatory box — capital rules, liquidity rules, supervision, exams, resolution regimes.

Stablecoins — at least as GENIUS-style “payment stablecoins” — are not supposed to fund lending. Their reserves are meant to be cash-like and liquid. So where does “yield” come from? Mostly from reserve income and platform economics, not from financing Main Street. 

BPI’s warning is blunt: If stablecoins are backed by Treasurys, depositors shift from funding private credit to funding government debt, shrinking bank credit availability.

And yes, there’s research pressure behind the concern. The Consumer Bankers Association points to work concluding that the best way to protect credit availability is to close the yield loophole that allows intermediaries to pay it.

Meanwhile, this fight is now actively jamming up Capitol Hill. Reuters reports the companion market-structure legislation is hitting repeated impasses because banks won’t accept a compromise that still allows reward-style yield, warning it would accelerate deposit flight.

So what’s the principled path? There are only two honest options.

An option is to close the loophole. If stablecoins are payment instruments, then “interest-like” inducements should be prohibited whether paid by issuers, affiliates or exchanges. Otherwise, Congress is effectively inviting regulatory arbitrage — the oldest trick in modern finance, now dressed up as fintech virtue.

The second option is the better one: deregulate banks to allow them to compete. If policymakers truly want innovation in payments and savings products, stop treating banks like utilities and then acting surprised when competitors sprint around them. The answer to overregulation is not to create a loophole for the new kids. It’s to remove unnecessary burdens on the old ones, letting competition happen on price, service, and technology.

What we should not do is run a two-track system: banks handcuffed by dense regulation, stablecoin platforms free to mimic deposits when profitable and dodge bank obligations when inconvenient. That’s not a free market. That’s government picking winners — by fiat, ironically enough.

Stablecoins may well improve payments. Let them win on payments. If they want to compete for deposits by paying yield, then either they should face equivalent rules, or banks should be freed to compete. Anything else is a backdoor subsidy masquerading as innovation.

Originally published on Substack. 

Artificial intelligence could revive competition in American banking. But not if Washington regulates it out of existence first.

Banks across the United States are pouring billions into artificial intelligence to detect fraud, analyze credit risk, automate compliance, and modernize their operations. As CNBC reports on Wall Street’s accelerating AI investment, financial institutions increasingly see AI as the next transformative technology for the industry.

This shift could expand competition across the financial system more than any regulatory reform Washington has attempted in decades.

But if policymakers follow their usual instinct—to regulate innovation before understanding it—they could slow the very revolution that might improve banking competition and financial access.

That would be a costly mistake.

The Next Financial Revolution

Artificial intelligence is not simply another financial software upgrade. It is the next major technological revolution in financial services.

AI systems can process enormous volumes of financial data in real time, allowing banks to detect fraud, evaluate lending risks, and automate regulatory compliance tasks that previously required massive administrative departments.

Financial institutions are already embedding these tools across their operations.

The Wall Street Journal reports that large banks are integrating AI deeply into core financial services as they modernize risk management and customer-facing technology.

The implications for financial competition are enormous.

Technology lowers barriers to entry. It reduces operational costs. And it allows smaller institutions and fintech firms to compete against established incumbents. That is how innovation expands opportunity.

AI Could Strengthen Community Banking

Artificial intelligence may be particularly important for smaller financial institutions.

Community banks and regional banks have faced rising regulatory costs for years. Compliance requirements have expanded while regulatory complexity has continued to grow.

Large financial institutions can spread those costs across enormous balance sheets. Smaller institutions cannot. Artificial intelligence offers a way to change that equation.

Automation can reduce administrative burdens. Machine learning can improve credit underwriting and fraud detection without requiring thousands of compliance personnel. Technology can lower barriers that previously limited competition.
If allowed to develop freely, AI could strengthen competition across the financial system. Consumers benefit when that happens.

The Real Risk Is Regulatory Overreach

Artificial intelligence itself is not the greatest threat to financial markets. Regulatory overreaction is.

Financial services are already one of the most heavily regulated sectors in the American economy. Adding sweeping new AI-specific regulatory frameworks could unintentionally entrench the largest incumbents. This pattern has played out repeatedly.

Rules intended to protect consumers often end up protecting the largest institutions that can afford the compliance burden. Startups and smaller banks often cannot.

Heavy-handed regulation risks slowing innovation and limiting competition precisely when technology could expand both.

America Must Lead the AI Race

Artificial intelligence in banking is part of a broader technological competition. The United States currently leads much of the global financial technology sector, but leadership is not guaranteed.

As The Washington Post reports on the growing global race over AI regulation and development, governments across the world are debating how aggressively to regulate emerging technologies.

Europe is leaning toward centralized regulatory frameworks. China is pursuing a state-directed model of technological development.

America’s advantage historically has been different. Entrepreneurship. Competition. Freedom to innovate.

In my research on Winning the Global Technological Race, I explain why maintaining that environment of innovation is essential if the United States wants to lead the next technological revolution.

Artificial intelligence will test whether policymakers still understand that lesson.

Financial Reform Still Matters

Artificial intelligence alone will not solve deeper structural problems in the financial system.

Over decades, regulatory accumulation and monetary policy distortions have reshaped financial markets in ways that often reduce competition rather than expand it.

In Correcting America’s Financial Future: Monetary Policy and Financial Regulation Guide, I outline how excessive regulation and distorted financial policy have weakened competition in American banking.

Artificial intelligence offers an opportunity to restore some of that competition. But only if policymakers allow markets to work.

Give Nothing a Chance

Whenever a new technology emerges, the political instinct is predictable. Government must act. New rules must be written. New regulatory frameworks must be built.

But often the best policy response is simpler: Give nothing a chance.

Markets coordinate information better than bureaucracies. Entrepreneurs adapt faster than regulators. Competition produces better outcomes than centralized mandates.

Every major economic transformation—from railroads to electricity to the internet—succeeded because innovation was allowed to develop before regulators tried to control it.

Artificial intelligence is simply the next chapter.

The Bottom Line

Artificial intelligence could dramatically expand financial competition, lower costs, and improve access to banking services.

But those gains will only materialize if policymakers resist the temptation to regulate innovation before it fully develops.
America has led every major technological revolution of the past century because entrepreneurs had the freedom to experiment and compete.

The AI banking revolution will test whether that tradition still holds.

Five Takeaways for Policymakers

1. Avoid premature regulation.
   Artificial intelligence in finance is still evolving. Overregulation now risks freezing innovation before its benefits are fully realized.
2. Encourage competition, not consolidation. Heavy regulatory frameworks often strengthen the largest institutions while limiting smaller competitors.
3. Modernize financial regulation. Decades of regulatory accumulation have already increased barriers to entry. Policymakers should focus on simplifying rules rather than layering new mandates.
4. Maintain America’s technological advantage. Innovation thrives in competitive markets. Overregulation risks pushing technological leadership elsewhere.
5. Let markets work. The best way to encourage financial innovation is often to remove barriers rather than create new ones.

Call to Action

If you are a policymaker, regulator, journalist, or financial industry leader, the choices made today about artificial intelligence will shape the future of financial competition.

Encourage innovation—or regulate the next financial revolution before it begins.
​
For deeper analysis, explore my research on Winning the Global Technological Race and financial reform in Correcting America’s Financial Future.​

Originally published on Fox News. 

There are recent reports that the Trump administration is considering an executive order or Treasury action requiring banks to collect customers’ citizenship information. This could include collecting documents such as passports for existing customers, not just new account holders. That is not "tightening the rules." It is a sweeping expansion of federal data collection that will raise costs for banks and customers, shrink access to basic banking services and push more activity into the shadows.

The intention may be to address illegal immigration and tighten enforcement, but this approach treats banks like a substitute for a functioning immigration system. Washington’s struggle to consistently enforce immigration policy does not justify shifting the burden onto financial institutions and law-abiding Americans. Expanding government reach into private financial relationships is not a solution to immigration failures. Fixing immigration policy is. Offloading enforcement costs to banks is just another way politicians shift the blame and hide the price tag.

​Banks already operate under serious identity verification mandates. Federal Customer Identification Program requirements under 31 CFR 1020.220 require banks to collect identifying information and use risk-based procedures to verify identity so they can form a "reasonable belief" that they know the customer's true identity. Identity verification is already the law. This proposal adds a new, separate layer: citizenship classification at scale.

​That means unforeseen costs imposed on people who are already complying with the law. Banks will need new systems, new staff training, new vendors, new audits and new exception-handling processes for customers who cannot meet the new demands immediately. Compliance costs do not stay at the bank. They show up in higher fees, fewer low-cost accounts and worse service.

It also means more friction just to participate in the modern economy. A "citizenship information" mandate would make it harder for people to open accounts and could impose extensive new documentation obligations on existing customers. Put simply, this is a regulatory landmine. When regulators increase penalties for getting it wrong, banks are forced to become more conservative about whom they can serve and to do so at a higher cost.

That is how debanking gets worse. President Donald Trump’s executive order — Guaranteeing Fair Banking for All Americans — sought to address the root cause of this very issue by pushing back on the governmental regulatory overreach that has driven account closures at financial institutions across the country. A new nationwide citizenship-data mandate would only turbocharge the same dynamics that force banks to close accounts rather than risk running afoul of compliance errors.

Now, the privacy problem. This proposal would require financial institutions to collect and transmit large amounts of highly sensitive personal information. The larger the dataset, the bigger the target. More collection and more transmission create more points of failure along with a greater risk of breach, internal misuse and mission creep. Once the federal government builds the pipeline, it will not be limited to the original justification.

Conservatives have pushed back for years against government intrusion into personal financial matters, including mandates that compel private disclosure to the government. The battle over beneficial ownership reporting under the Corporate Transparency Act is a recent example of how quickly "anti-crime" justifications turn into broad surveillance architecture. Requiring banks to collect citizenship information on hundreds of millions of customers would be an even broader expansion of federal data collection than what small businesses were told to accept. 

And the burden will not be evenly distributed. Many Americans do not have passports or easy access to formal documentation. The Washington Post reports that roughly half the population lacks a passport, and banking industry experts warn that the requirement could restrict access to financial services and push people toward higher-cost options. Seniors, rural residents and lower-income individuals are the most likely to get caught in the gears. For rural communities, the challenge is worse because documentation offices and support services are farther away and harder to reach. 

That leads to the most self-defeating outcome of all: forcing people out of traditional banking. When compliance barriers rise, people do not stop earning, spending and saving. They route around the system. That means more cash-heavy activity and more informal transactions, making financial crime harder to detect and reducing transparency. This is why heavy-handed financial mandates often backfire. They can drive legitimate activity away from institutions where patterns can be monitored and toward channels where law enforcement sees less, not more.

This is not an argument for weak enforcement of existing law. It is an argument for doing enforcement the right way, using targeted tools aimed at bad actors, not building an ever-expanding registry through the banking system that sweeps up everyone else. Banks exist to safeguard deposits and allocate capital, not to become a nationwide citizenship checkpoint.

If Washington wants a more secure and lawful system, it should start with policies that increase compliance where it matters and reduce compliance burdens where it does not. This proposal does the opposite: it punishes the compliant, expands government reach and makes the system less transparent by pushing people away from it.