The rising market share of private credit is not coming from banks, it is coming from investment grade markets, high yield markets, and leveraged loan markets, see chart below.
A financial system with more sources of financing for firms has two macroeconomic benefits.
First, the more choices firms have when they need financing, the better. A more diversified financial system with competition between credit providers is better for economic growth, particularly when some players, such as banks, have high leverage and uncertainty about deposits as their source of financing.
Second, having different types of financing available creates more financial stability as more participants can stabilize the financial system and provide credit or buy equity in case of a sudden change in sentiment in financial markets or the economy.
The bottom line is that:
1) The growth in private credit is giving firms in need of financing more choice and thereby boosting long-run growth, and
2) The growth in private markets is improving financial stability with more capital willing to step in when there is distress.
For more discussion see also this OECD working paper and this IMF working paper.
Source: Preqin, ICE BofA, FRB, PitchBook LCD, Apollo Chief Economist
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