In a nutshell: JPM rejects subprime credit card applicants. Discussing having private credit companies issue the cards.
Private credit grew over the last decade as an industry by picking up loans the banks were pulling back from following the 2008-09 financial crisis. As it has expanded, private credit has become a critical lifeline for fintech lenders that don’t have a balance sheet and need constant funding. It provides funding that enables financing on everything from credit cards to buy-now pay-later loans to financing for Harley-Davidson motorcycles that are sold at dealerships.
Private credit also buys outstanding consumer debt from banks that don’t want to keep it on their books.
Private credit (“Shadow Banking System”) is unregulated. Out of a roughly $2 trillion market, well over $1.5 trillion is tied directly to corporate and commercial borrowers.
Private credit funds rarely lend to an individual retail borrower directly. Instead, they engage in asset-backed lending or specialty finance. The primary concern raised by regulators (like the Financial Stability Board) is not that consumer defaults will instantly destroy private credit funds, but rather interconnectivity to regulated banks if defaults were to spike.
The situation is stable in terms of containment, meaning a spike in consumer defaults or retail loan delinquencies is unlikely to cause a sudden run on the banks because the capital is locked up in long-term institutional vehicles. However, it is unstable in terms of yield quality—investors and funds heavily exposed to over-leveraged consumer segments are absorbing reduced returns, higher write-downs, and the reality of navigating a full credit cycle for the first time at scale.
Zombies are doing PIK - paying debts with more debt, extend and pretend.
Wendy