What if we were to tell you that the largest US banks are investing an eye-popping $1 trillion in the very competitors seeking to disrupt and replace them? Sounds crazy, doesn’t it? Yet that’s precisely what’s occurring in the modern financial system.
Banks, the cornerstone of conventional finance, are quietly financing a sprawling web of rivals—be they fintech companies or shadow banks—remaking the world of money. This is not mere irony. It is a tectonic shift in strategy, risk, and the money of the future.
Let’s get into the why and how US banks are effectively equipping their competitors.
The $1 Trillion Puzzle: What’s Really Happening?
And where, oh where, is all that giant $1 trillion headed? It’s chiefly being directed into so-called non-bank financial institutions or the “shadow banking system.” They are:
- Money market funds
- Hedge funds
- Private credit companies
- Fintech entities
- Asset managers
These companies aren’t banks in the classical sense—they don’t accept deposits or come under the same tight rules. But they make loans, handle payments, and sell investment products, usually at quicker, more high-tech rates than the banks themselves.
And who is fueling their expansion? Guess again: Yep, the same banks they’re disrupting.
Why US Banks Fund Their Competitors
It may appear financial folly, but there is rationale for this seemingly contrary approach. Let’s divide it:
- Risk Diversification and Profitability
The banking institutions are required to maintain high regulatory capital levels. By financing non-banking corporations not bound by these same limits, they transfer risk while profiting through interest or fees. - Market Share Through Indirect Control
Rather than losing market share outright to fintech startups, banks invest in or collaborate with them. In this manner, they remain relevant and profitable, albeit out of sight. - Accelerated Innovation Without Compliance Drag
New financial product launches within a bank take an eternity because of bureaucracy. By farming out innovation to startups and investing in them, banks are exposed to new ideas without the drag of legacy systems. - Tapping Liquidity
Reforms after 2008 filled banks with more liquidity than they could handle. With rates on the rise, they’re looking for high-yield uses such as private credit markets and other investments.
Examples: Who’s Funding Whom?
Let’s be specific. Here are some examples that put into perspective how conventional banks are financing their rivals.
- JPMorgan Chase and Fintech
JPMorgan has quietly made investments in more than 50 fintech startups, ranging from robo-advisors to payment applications. They’ve even established APIs to provide third-party developers with access to some sections of their infrastructure. - Goldman Sachs and Private Credit
Goldman is a leader in the private credit business, investing billions into funds that make loans to companies beyond the reach of traditional bank loans. - Bank of America and Shadow Banks
Bank of America has significant exposure to money market funds, which often lend to institutions that bypass the regular banking system. - Citigroup and Venture Capital
Citigroup is among the top investors in fintech via Citi Ventures, backing startups in AI, blockchain, and alternative lending platforms.
What Is Shadow Banking? And Why Is It Growing So Fast?
The phrase “shadow banking” has a bit of a sinister sound to it, but it just means lending and credit activity that takes place outside the formal banking system. These institutions don’t have banking licenses and aren’t covered by things like FDIC insurance.
But shadow banks have taken off in popularity because:
- They’re quicker and more nimble
- They’re less regulated
- They serve riskier but high-reward borrowers
- Investors are starved for higher returns
And who is backing their meteoric ascendancy? You guessed it—conventional banks seeking money and power.
The Risks: What Could Go Wrong?
True, this symbiotic relationship between conventional banks and their competitors is not without dangers.
- Hidden Systemic Risk
When shadow banks collapse, they have the ability to create huge waves in the financial system—particularly if conventional banks are heavily involved in their activities. - Lack of Oversight
These shadow institutions are not subject to the same system of checks and balances as conventional banks. When a crisis does arrive, the absence of regulation can create massive devastation. - Overleverage and Instability
Traditional institutions may inadvertently be making unsustainable levels of debt in the economy possible by lending to shadow banks. - Public Trust Issues
Consumers and investors may be uneasy with the fact that their reputable bank is supporting riskier, less regulated institutions in the shadows.
Why This Trend Is Picking Up Speed in 2025
There are a number of significant developments that have accelerated this trend of financing in 2025:
- More Favorable Interest Rates: Banks can get higher returns on investment by lending to alternative credit markets.
- Technology Integration: Fintechs provide bank-impossible digital experiences.
- Shifting Consumer Trends: Younger generations place greater faith in apps than in bank branches.
- Global Economic Dynamics: Volatile global markets make diversified investment options more appealing.
Fintech: The Biggest Beneficiary of Bank Money
Fintech companies are by far the most important bank-funded competitors. From robo-investing to personal loans, fintech startups are transforming finance.
Why Banks Support Fintech:
- Access to state-of-the-art tech
- Increasing exposure to young demographics
- Rapid introduction of new financial products
- Freedom to pilot innovations without large-scale introduction
- And in exchange, fintechs get credibility, clients, and a financial cushion. It’s a win-win. for the moment.
Private Credit Funds: The New Lending Giants
Private credit companies—formerly niche players—are now making loans of billions to firms that banks are unwilling or unable to service. Banks tend to offer the seed capital or lines of credit for these funds to make use of.
This allows banks to avoid regulation without sacrificing profits from loans extended to riskier customers.
How Regulators Perceive This Relationship
Regulators such as the Federal Reserve and SEC have become aware of this shifting dynamic. Some of the issues they’ve raised:
- A call for improved data on shadow bank exposures
- Demands for improved financial disclosure transparency
- Alerts about moral hazard, in which risk is transferred around with no one held accountable
- So far, no broad reforms have been implemented—but heightened scrutiny appears unavoidable.
What This Means for You (the Consumer)
You may be asking yourself—how does this impact me?
- More Choices
You have access now to a greater range of financial services—faster loans, improved investment instruments, neater payment apps. - Reduced Costs (Occasionally)
Fintech companies charge lower fees than banks, because they have less overhead. - Possible Risks
Be careful. Shadow banks and fintechs lack the same insurance as traditional banks. Always read the fine print.
The Future: Are We Headed for a Bank-Fintech Merger?
As the lines between banks and their rivals blur, many experts predict we’re heading toward a hybrid model—where traditional banks operate like tech companies, and fintechs gain more regulatory legitimacy.
Some even believe we’ll see major mergers between banks and fintechs, creating financial super-entities that dominate both sides of the coin.
Conclusion: A Strange, Profitable Alliance
In the wild economy, it appears your competition may be your best bet. US banks financing their competitors with more than $1 trillion is not just coincidence—it’s a strategy.
Whether it’s intelligent risk management or a time bomb waiting to happen rests on how well these relationships are handled. But there’s one thing certain: the future of finance will not be a war between banks and fintech—it’ll be an uncomfortable, profitable marriage.