How Banks and Private Credit Became the Best of Frenemies
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What is the main topic discussed in this episode?
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Hello and welcome to another episode of the Odd Thoughts Podcast. I'm Tracy Alloway.
And I'm Joe Weisenthal.
Joe, I feel like I start every private credit episode with the same point. But I mean, private credit, it's everywhere right now. I think I counted like dozens and dozens of stories on private credit that came out just on the Bloomberg in the past week.
There's two funny things that are going on, which is one, private credit. So these non bank entities providing loans, et cetera, wanting to get into credit, and there's more and more about that every day. And then there's banks wanting to get more and more into private credit, which is this own thing of okay, you're still the bank, but you're doing it in some sort of balance sheet structure that resembles private credit. And what's up with that?
What's up with that indeed? This is the what's up with that episode. I'm so glad you asked that question. But we're going to be talking about the relationship between banks and private credit. Because the other thing that's been happening is every time we talk to a bank or a private credit entity on this show and we ask about the relationship between regulated banks and non-banks, you get this really diplomatic kind of awkward answer. Like, well, we view our banks. Yeah. And no one will really explain And no. How they actually feel about each other.
Totally. You know, the one other thing before we get into it that I think about a lot is I look at the rise of private credit, and there is a big part of me that says, this is what regulatory success looks like. This is what post-Dodd Frank success looks like, that there is more of this risk taking. Right. This was the intent. Yeah, happening outside of the deposit-taking banking institution. On the other hand, if a lot of the leverage For private credit and a lot of these relationships is being plied by banks and so forth, then it makes me wonder did we actually extricate the risk or in the end Yeah. Or we
just put a wrapper on it.
We put a wrapper on it. In the end, does all financial risk read down back to the banking system?
That's exactly it. And I gotta say, you know, there is a lot of discourse from which we can pull from a lot of historical analogies because of course bank disintermediation is not a new thing. It's basically been happening for as long as we've had banks. And if I think back to like two big moments in the process of bank disintermediation, it has to be The invention of the junk bond market in the nineteen eighties, securitization also in the n nineteen eighties and nineteen nineties, peer to peer lending, that was a fun one. Remember that?
Well, the other thing too, you know, it just occurred to me, and Bear Stearns was not a retail deposit taking institution, but part of why they blew up is like they had these in house hedge funds, right? And so even this idea of hedge funds and non bank entities sort of existing within more larger traditional regulated financial institutions is not that new. That was a story of the great financial crisis.
That's exactly right. So I'm very happy to say this is our our banks and private credit, basically friendemies episode. We're gonna be speaking with really the perfect guest. It's someone that I've known for a long time. And we've actually had him on the podcast before, but I don't think you were there. I promise you are really gonna love this. We're gonna be speaking with Hugh Van Steenis. He is the vice chair at Oliver Wyman and also the former global head of banking. Research over at Morgan Stanley.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:00–5:10
2
Why are banks suddenly partnering with private‑credit firms?
5:10–20:41
3
How big is the private‑credit market compared to traditional banking assets?
20:41–31:35
4
What drives banks to outsource risk to private‑credit lenders?
31:35–42:01
5
How do synthetic risk transfers let banks recycle capital faster?
42:01–44:58
Speakers
5 identifiedMore from Odd Lots
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