"The collapse of two US firms, First Brands and Tricolor, has shone a light on private credit and its growing influence in the global economy. The failures have led to ballooning losses at traditional banks, and, coupled with worries about the health of US regional banks, have raised concerns about weak lending standards and potential threats from an opaque corner of the so-called shadow banking sector."
"Private credit emerged in the 1980s as a relatively niche industry offering private loans to businesses. Unlike banks, where loans are backed by customer deposits, private credit firms' loans are backed by money raised from private investors, including pension funds, insurers and high net worth individuals. But they have become increasingly intertwined with the traditional banking industry, with lenders in Europe and the EU significantly exposed to private credit firms."
"The private credit industry boomed after the 2008 financial crisis, when regulators cracked down on traditional banks and forced them to hold more capital in effect a financial cushion against riskier loans. Private credit loans vs big banks The new rules also required banks to do more forensic checks on borrowers, making lending more expensive and slower. This created a gap in the market that private credit was ready to fill."
Private credit provides loans to businesses funded by private investors such as pension funds, insurers and high net worth individuals rather than customer deposits. The sector expanded rapidly after the 2008 financial crisis as banks faced stricter capital and underwriting rules, creating a lending gap that private credit filled. Ultra-low interest rates and access to bank financing further fuelled industry growth. Recent failures of two US firms produced large losses at traditional banks and exposed deep interconnections with the banking system, prompting concerns about lending standards and shadow banking opacity.
Read at www.theguardian.com
Unable to calculate read time
Collection
[
|
...
]