The amount US financial institutions have loaned to shadow banks such as fintechs and private credit groups has passed $1tn, as regulators warn that growing ties between traditional and alternative lenders could present systemic risks.
The US Federal Reserve reported on Friday that US banks crossed the 13-figure threshold in loans outstanding to non-deposit-taking financial companies at the end of January. These hedge funds, private equity firms, direct lenders and others use the money to leverage investments and increasingly lend it out to a range of risky borrowers that regulators have discouraged banks from lending to directly.
That amount is up 12 per cent in the past year, making it one of banking’s fastest-growing businesses when overall loans growth has been sluggish, up just 2 per cent.