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As traditional banks surrender ground in the corporate lending business to an array of non-bank lenders, the risks to the U.S. economy are growing, says Moody’s Investors Service.

In a new report, the rating agency said that non-bank lenders — including private credit funds, business development companies and collateralized loan obligations (CLOs) — are increasingly taking market share from traditional banks in the business of financing corporate America.

Since the global financial crisis, the share of lending accounted for by non-banks has steadily grown. On their own, CLOs now account for 29% of corporate lending, just behind the 37% share held by banks, Moody’s said. Private funds, including hedge funds, account for 14% of lending activity.

The report pointed to a number of factors behind the rise in non-bank lending, including “growing demand from yield-seeking investors, against the backdrop of prolonged low interest rates.

“Investors hunting for yield are willing to assume greater credit and illiquidity risk, increasing the attractiveness of business development companies, CLOs and private credit funds,” it said.

At the same time, banks have retreated from riskier lending, the report noted, reflecting both their own strategic decisions and more restrictive regulation of leveraged lending.

This rise in non-bank lending also raises systemic risk, Moody’s said, given its role in stoking corporate leverage.

“Most of this lending remains deeply opaque, which along with the growing risk appetite of private credit is driving an accumulation of asset quality performance risks,” it said.

“Depending upon how private credit lenders are funding themselves and whether they are holding concentrated positions, there is potential for a ‘cascading’ of liquidity, capital and asset quality risk through the financial system,” it warned.