The author is vice-chair at Oliver Wyman Private credit firms have enjoyed a “golden moment”, as Blackstone president Jonathan Gray put it last year, while banks have been on the back foot from the sharpest increase in interest rates in 45 years. In 2023, these non-bank lenders funded a whopping 86 per cent of leveraged loans, up from 61 per cent in 2019, according to PitchBook LCD.
Secondly, outdated financial regulations often exacerbate such shocks. In the 1970s and 1980s, Regulation Q, which imposed ceilings on interest rates offered to depositors in the US, exacerbated deposit flight to money market funds. Similarly, the Fed’s overnight reverse repo facility triggered deposit flight as the Fed raised rates. Old rules are revised slowly — Reg Q was introduced in 1933 — disadvantaging banks. Third, financial product innovation is a vital enabler.