Private Credit: The Lending That LeftThin moat
JPMorgan Chase (JPM) — moat facet
A fund holds no capital against a loan and a bank must, so the fund can accept a lower yield on the same asset -- and JPMorgan's own filing calls the result a systemic risk.
The most important competitive development in banking over the past decade did not come from another bank.
Direct lending funds — run by firms whose names appear nowhere in a banking regulator's remit — now originate a large share of the leveraged and middle-market credit that banks once held. The arbitrage is structural rather than clever: a regulated bank must hold capital against a loan and a fund does not, so the fund can accept a lower yield on the same asset and still clear its cost of capital.
JPMorgan's own risk factors describe the consequence in unusually direct language, warning that the interconnectivity across credit markets increases the risk that the significant expansion of private credit could worsen losses among non-bank lenders and their borrowers, particularly if stress or defaults spread to broader funding and credit markets1.
That is a bank naming a competitor as a systemic risk, which is not the same as naming it as a threat to revenue — and both readings are correct.
The defence is that private credit has never been tested through a genuine default cycle, and that its funding is committed capital rather than deposits, which behaves differently under stress. Management has said it will keep investing in private credit despite concerns about asset quality2.
The number to watch is the share of US corporate credit held outside the banking system. It has moved in one direction for ten years.
Lending continues to migrate to funds that hold no capital against it, and JPMorgan's own filings now describe the expansion of private credit as a systemic concern. The arbitrage has not been closed by anything.
JPMorgan's filing names private credit as a risk to the system, and it competes for the same borrowers. Corporate loans growing at double digits says the bank is holding its ground; a decline would show the lending leaving.
Source: JPMorgan Chase Q2 2026 results ↗- ReportedThe 10-K warns that the interconnectivity across credit markets increases the risk that the significant expansion of private credit could worsen losses among non-bank lenders and their borrowers, particularly if stress or defaults spread to broader funding and credit markets.JPMorgan Chase & Co., Form 10-K FY2025 — risk factors and competition (SEC, CIK 19617). 'Competitors include other banks, brokerage firms, investment banking companies, merchant banks, hedge funds, commodity trading companies, private equity firms, insurance companies, mutual fund companies, investment managers, credit card companies, mortgage banking companies, trust companies, securities processing companies, automobile financing companies, leasing companies, e-commerce and other internet-based companies, digital asset and other financial technology companies.' 'New competitors in the financial services industry continue to emerge, including firms that offer products and services solely through the internet and non-financial companies that offer products and services that disintermediate traditional banking products and services offered by financial services firms such as JPMorganChase.' The risk factors further warn that advocacy by non-banking competitors for exemptions from regulatory requirements could significantly disadvantage traditional financial institutions; that if the firm does not keep pace with rapidly changing technological advances, including the adoption of generative AI, it risks losing clients and market share, with competition intensified as the feasibility, capability and scalability of new technologies improves; that adverse macroeconomic or market conditions could prompt outflows from funds or accounts or cause clients to invest in products that generate lower revenue; and that the interconnectivity across credit markets increases the risk that the significant expansion of private credit could worsen losses among non-bank lenders and their borrowers, particularly if stress or defaults spread to broader funding and credit markets. — FY2025 · publ. 2026-02-13 · source ↗
- Third-party estimateManagement has said the firm will continue to invest in private credit despite concerns about cracks in asset quality.Peer analysis of the large US banks — Bank of America's return on tangible common equity is projected by analysts to improve to 18% over the next two years; its shares closed at $63.81 on 11 August 2026, implying a price-to-tangible-book multiple of roughly 2.2 times against tangible book value per share of $29.37. In the second quarter of 2026, net income rose 41% at JPMorgan, 84% at Goldman Sachs, 58% at Morgan Stanley, 27% at Bank of America, 45% at Citigroup and 17% at Wells Fargo. — Q2 2026 · publ. 2026-08 · source ↗