Huw van Steenis on Why Banks Keep Partnering with Private Credit

By now, everyone knows that private credit is a hot market. What's less known is that banks want in on it too. It's an odd state of affairs given that both these entities are in the business of making loans, so in theory they should be competing against each other. But instead we're seeing a bunch of deals, with more than a dozen big banks teaming up with private credit over the past year. So why are two seemingly natural competitors joining forces? And how much of an existential threat does private credit really pose for the banking industry? On this episode, we with speak with Huw van Steenis, vice-chair at Oliver Wyman and a long-time bank analyst at Morgan Stanley, about this new dynamic. This transcript has been lightly edited for clarity.

Key insights from the pod:
How big is private credit? — 4:17
Why we care about private credit? — 4:45
Retranching the banking system — 6:23
Capital benefits from teaming with private credit — 8:14
Number of bank-private credit partnerships — 10:11
How are bank-private credit partnerships formed? — 12:57
The role of insurance companies — 16:13
Financial stability risks — 19:48
Riskiness of prime brokerage — 23:31
How banks are making money now — 26:00
Physical constraints on lending — 28:11
The role of third party software in banks — 32:36
The surge in Fiserve stock — 33:41
Why the next big thing is asset-backed lending — 34:43