Private Credit’s Banking Romance May Turn Sour
Investors need to keep cool heads and regulators must remain vigilant to limit the risks of another meltdown.
JPMorgan’s Jamie Dimon wants to supply finance to his customers however best suits them — including via private credit.
Photographer: Hollie Adams/Bloomberg
To understand the wave of bank partnerships with private-credit fund managers during the past year or so, think back to the boom in mortgage lending through securitization in the early 2000s. The same forces are at work: a huge demand for finance, limited and costly bank capital and investment bankers’ ingenuity and desire to generate business.
Ultimately, similar dangers are likely to arise too, as this lending machine becomes better at recycling bank capital faster, more debt is created more rapidly and competition fuels higher leverage, rising asset prices and debased standards on who or what can borrow. Personally, I fear the eventual denouement may also be familiar — unless investors keep cool heads and regulators insist on transparency.