Marc Rowan: evaluation

Transcript context

…But say more and more of the economy goes into relatively successful private credit. Doesn’t the Fed have to raise interest rates all the more? Because there’s no impact or no major impact on your lending and the lending of your peers, but there are still some banks out there, 20 percent. To get those banks to respond, does monetary policy become tougher and tougher to pull off? How do you think about this? I think it has become tougher and tougher to pull off. I think that to the extent we lived in a world where banks were 100 percent of the credit market, there was a very direct relationship between Fed action now and what happened in the economy. To the extent 80 percent of credit is now provided by investors — forget about private credit for the moment — but by investors, there is a less direct but still incredibly important because the alternatives, as rates go up, credit becomes more attractive to investors versus equities. As rates go down, the reverse happens. There are a lot of abilities still of the Fed to influence outcomes, but it is not the direct correlation that you once had. I also don’t think of it in just a monolithic way about, “Well, the Fed has less control.” I think about resilient and necessary. Those are the words that always come back to me. I look at the US. Relative to almost every other big capital market, the US is in an extraordinary position, and that is, in my opinion, reflective of the diversity of capital sources that we have. No other place in the world really has what we have. If you look at almost every Asian economy — two products, equity and bank debt. Look at Europe — equity and bank debt. Yes, there’s the beginnings of a fixed-income market. There’s a high grade, but there is not the diversity of capital sources that you have here. I come back to resilient and necessary. If the banking system, while really important and not going away and still vital for the country, is borrowed short and lent long, every dollar that moves out of the banking system and into the investment marketplace actually deleverages the entire system. Think about that. A bank is levered 10 to 12 times. When you move credit out of the banking system into a mutual fund, it’s zero-levered. But there’s less liquidity in that world, right?…

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