Macro Musings with David Beckworth Richard Berner on Growth of the Private Credit and the Role of Fiscal Dominance on Treasury Markets
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Jan 19, 2026 Richard Berner, former director of the Office of Financial Research, dives into critical themes affecting our financial landscape. He discusses the fragility of global liquidity, highlighting how rising sovereign debt complicates stability. Berner also addresses the growth of private credit, its role in recent banking turmoil, and the implications of fiscal dominance—raising concerns about market functioning. With insights from his extensive career, he advocates for better data on private funds to enhance oversight and reduce risks.
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Fragile Global Liquidity Dynamics
- Global liquidity is fragile because market and funding liquidity interact and can evaporate during stress.
- Collateralized funding and huge sovereign debt issuance amplify procyclicality and liquidity demand in stress.
Collateralized Finance Raises Procyclicality
- Post-GFC rules and collateralization reduced unsecured funding and made intermediation more procyclical.
- That shift increases liquidity demand in stress and can create systemic vulnerabilities.
Fix Regulations, Don’t Just Add Patches
- Revisit liquidity and leverage rules to balance resilience against market functioning.
- Consider targeted tweaks like adjusting the supplementary leverage ratio and reviewing HQLA definitions.
