The collapse of two US firms, First Brands and Tricolor, has shone a light on private credit and its growing influence in the global economy.

The failures have led to ballooning losses at traditional banks, and, coupled with worries about the health of US regional banks, have raised concerns about weak lending standards and potential threats from an opaque corner of the so-called shadow banking sector.

But what is private credit and should we be worried?

Private credit emerged in the 1980s as a relatively niche industry offering private loans to businesses.

Unlike banks, where loans are backed by customer deposits, private credit firms’ loans are backed by money raised from private investors, including pension funds, insurers and high net worth individuals. But they have become increasingly intertwined with the traditional banking industry, with lenders in Europe and the EU significantly exposed to private credit firms.