The expansion of private credit in the United States has significantly altered the corporate lending landscape, reducing the dominance of traditional banks. Since 2002, nonbank financial institutions have increasingly outpaced banks in lending to corporate borrowers, a trend that has accelerated in recent years. By 2023, private credit accounted for a larger share of corporate borrowing than banks, with assets under management in the private credit market reaching $1.6 trillion globally. Private credit offers advantages such as greater efficiency, flexibility, and tailored solutions, making it an attractive option for corporate borrowers. The rise of direct lending, now a dominant strategy in private credit, has further solidified its position in the market.
Banks have responded to the rise of private credit with a mix of competition and cooperation. Some large banks, particularly US-based global systemically important banks, have developed their private credit funds, while others are partnering with private credit firms to offer more comprehensive services. However, many regional banks have been slower to adapt, leaving them vulnerable to competition from nonbanks. As private credit continues to grow, banks face the challenge of balancing competition with collaboration, while also navigating a complex regulatory environment and the potential impact of Basel III endgame rules on their lending capabilities.
