Blackrock Expects ‘Tectonic Shifts’ In The National Financial Market That Will Affect Banks
According to a recent study from BlackRock, as conventional banks struggle to compete due to changing capital flows, private credit funds are prepared to finance more enterprises.
BlackRock predicts that private credit funds will replace certain conventional banks as the primary source of business financing. Executives who participated in the study, such as Jean Boivin and Alex Brazier, highlighted the declining capacity of banks to serve small and medium-size businesses. As a result, these banks may be hampered in their ability to lend if more money is being transferred out of deposit accounts and into money market funds.
A decrease in bank earnings and a reluctance to lend might result from an increase in interest rates. This profound shift may cause a shift in the roles played by conventional banks, opening the door for private credit funds to step in.
There is now $5.7 trillion in U.S. money market funds. Because of the high rates of return they provide, more and more individuals are switching their savings from banks to these funds. Therefore, U.S. banks are in the difficult position of having to fight fiercely for deposits. Smaller banks have already begun this by increasing customer interest rates, reducing the competitive edge they formerly had in loan extensions backed by lower deposit rates.
BlackRock also stresses that it’s not only the smaller banks that are feeling the pressure. Financial giants such as JPMorgan Chase & Co. warned that the future may not be as bright after reporting strong net interest income last week. The stakes are high, and even the biggest companies are rethinking their tactics in the face of rising capital controls and an uncertain economic climate.
BlackRock is increasing its attention to private credit funds. The article claims the company plans to make significant investments in the private credit business worldwide (a $1.6 trillion market) during the next five years. Even private credit funds aren’t immune to economic volatility, so keep that in mind. The authors of the article warn that borrowers may suffer in the long term due to the increased financing costs connected with these funds.