Odd Lots
How Banks and Private Credit Became the Best of Frenemies
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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Quick takeaways
- The relationship between banks and private credit has evolved into a collaborative dynamic, allowing both parties to optimize risk management and profitability.
- Insurance companies are increasingly funding private credit firms, enhancing their competitive position and diversifying funding sources in the financial system.
Deep dives
The Surge of Private Credit and Its Dynamics
Private credit is experiencing significant growth as non-bank entities increasingly provide loans that challenge traditional banking structures. Recently, private credit institutions were responsible for approximately 90% of all leveraged loans, reflecting a trend where banks are both competing and partnering with these firms. This evolution stems from regulatory changes post-2008 that have pushed riskier lending activities outside of traditional banks, creating a parallel system for lending to corporate America. As private credit firms expand their reach, banks are concerned about the impact on their profitability, signaling a shift in the financial landscape.
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