One of American banks' fastest-growing businesses is lending to the very companies trying to grab their market share.
The article from Bloomberg, published on March 27, 2025, discusses how U.S. banks are inadvertently financing their own competition to the tune of $1 trillion. This phenomenon occurs as banks lend money to non-bank financial institutions like private equity firms, fintech companies, and shadow banks, which then use these funds to compete directly with traditional banks in areas such as lending, wealth management, and payment processing. This lending has grown significantly over the past decade, driven by the search for yield in a low-interest-rate environment and regulatory changes that have pushed some activities outside the traditional banking sector. The article highlights the irony and potential risks for banks, as they are essentially funding entities that could disrupt their business models, potentially leading to a loss of market share and increased systemic risk. It also notes that while this practice boosts short-term profits for banks, it might undermine their long-term stability and profitability.
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