Odd Lots How Banks and Private Credit Became the Best of Frenemies
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Oct 24, 2024 Huw van Steenis, vice-chair at Oliver Wyman and former global head of banking research at Morgan Stanley, shares insights on the evolving dynamics between banks and private credit. He discusses why banks are collaborating with private credit firms, despite being competitors in lending. The conversation explores the regulatory impacts and new risk behaviors stemming from the Dodd-Frank Act. Huw also highlights the trillion-dollar private credit market's role in reshaping corporate financing and the increasing influence of AI and data in modern banking.
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Private Credit's Size and Impact
- Private credit is still relatively small compared to traditional banking, around $2.5-3 trillion vs $32 trillion in European banking assets.
- Its significance comes from rapid growth and impact on bank earnings, not sheer size.
Rise of Private Credit
- Post-2008 regulations pushed riskier lending outside traditional banks, leading to private credit growth.
- Private credit firms filled the gap by focusing on mid-market loans and leveraged lending.
Banks and Private Credit: Symbiosis
- Top banks view private credit as an opportunity, not a threat, enabling risk recycling and increased lending.
- They can offload unwanted loans, optimize capital via synthetic risk transfers, and partner for growth.