Skip to main content

Why The Shadow Banking System Could Trigger The Next Major Crisis

Adam Taggart | Thoughtful Money® Jul 2, 2026

Summary

Private equity, not just private credit, may anchor shadow-banking risk: Danielle DiMartino Booth argues sponsor valuations look as questionable as the loans they back.

Public companies marking private holdings aggressively can inflate reported earnings, putting a feedback loop behind the E in P/E ratios.

Non-bank lenders hold about $258 trillion — 51% of global financial assets — a shadow system now larger than regulated banking.

With bankruptcies up roughly 40% year over year and rates still elevated, the guest rates private-market concern 7-8 out of 10.

Adam Taggart's takeaways

  • Top takeaway As host, presses the guest to quantify her worry, asking where she would place private markets on a zero-to-ten scale with ten meaning her hair is on fire.

Danielle DiMartino Booth's takeaways

  • Top takeaway Rates her concern about private markets at 7-8 out of 10 as of the July 2026 interview, citing a public-company bankruptcy cycle running about 40% higher year over year and arguing private-world insolvencies are higher still.
  • Argues the systemic risk is bigger than private credit itself: the shadow banking system holds about $258 trillion, 51-52% of global financial assets as of end-2024, larger than conventional banks, fed by lending from regulated banks into non-depository institutions.
  • Contends public companies are valuing private holdings at questionable levels, so as much as 50% of the Magnificent Seven's earnings rests on value marks that should be one-time accounting items but recur, making the 'E' in the P/E ratio suspect.
  • Points to a record $251 billion of equity sold in the first half of 2026, breaking all prior records, as casting light on private equity, which she says sponsors the roughly $2 trillion private credit market, as the bigger concern.
  • Rejects the idea that fading headlines mean the private credit problem is resolved; in her view the market has entered an 'acceptance phase of grief,' accepting the assets are worthless and moving on rather than fixing anything.