The Rise of Private Credit under Lending Competition with Banks (draft coming soon)
Abstract
We study the rise of private credit (PC) and its competition with syndicated bank lending. Four stylized facts show that PC and bank loans are imperfect substitutes. We estimate borrower demand and embed it in a structural model of bank–PC competition with different regulatory, technology and funding conditions. Borrowers increasingly prefer PC, while expanding limited-partner (LP) capital lowers its funding costs. Counterfactuals attribute 38% of cumulative PC lending growth to borrower preferences and 44% to LP capital supply. Capital inflows through new investment vehicles, such as semi-liquid BDCs, increasingly drive this expansion in recent years.
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