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Banks have dramatically increased their lending to private equity and credit, according to Lisa Abramowicz. Since 2018, lending has tripled to over $300 billion.
As a result, funds that invest in highly leveraged companies have themselves become highly leveraged, amplifying potential risks in the financial sector.
Morgan Stanley recently projected that direct lending default rates could rise to 8% due to AI disruption and high leverage in the software sector, according to a report by Abramowicz. She has also reported on expectations for oil and commodity price increases even in the event of escalating conflict with Iran, citing commentary from Carlyle's Jeff Currie in a separate article. These developments come as banks significantly expand their exposure to leveraged loans.