BlackRock (NYSE:BLK) Investment Institute sees a dramatic change in the US financial sector as banks confront more competition and more private credit firms will support enterprises. This development fits within a larger worldwide industrial trend valued at $1.6 trillion.
Research by Jean Boivin and Alex Brazier suggests that banks’ capacity to credit small and medium-sized businesses (SMEs) may be hampered by the flow of wealth from banks to money-market funds, which presently contain $5.7 trillion in the US. In order to draw and keep deposits, banks could have to increase interest rates, which might discourage lending.
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Large banks, including Jamie Dimon’s JPMorgan Chase (NYSE:JPM) & Co., anticipate difficult times ahead because of an unpredictable economy and more stringent capital requirements. It is anticipated that these banks would raise interest rates, losing the ability to fund loans with inexpensive deposits as a result.
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The paper also highlights how, in this difficult economic environment, non-bank competitors like hedge funds and private credit organisations are becoming more and more competitive. While conventional banking establishments struggle with these problems, it seems that private credit funds,