Finance Seminar Sergey Chernenko

The paper asks a central question in modern financial intermediation: Why has lending to middle-market firms increasingly shifted from banks to private credit funds?

Contrary to the common narrative that stricter bank capital regulation pushed lending into the shadow banking sector, the study shows that private credit funds are actually very well capitalized, with capital ratios far exceeding those of banks.

Instead, the paper argues that banks may find it more attractive to lend to private credit funds rather than directly to firms. Regulatory treatment allows banks to hold these exposures with lower risk weights while avoiding the supervisory and operational costs associated with managing risky middle-market loans directly.

The findings suggest that the rise of private credit reflects a reorganization of the lending chain, where banks increasingly finance nonbank lenders instead of originating and holding loans themselves.