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Wall Street banks may finally have a long-awaited opening to take back market share from private credit lenders.
After a decade in which private credit lenders grew rapidly and took over most of the lending for leveraged buyouts, the balance may be shifting, with signs of strain in the sector as banking regulations ease.
“This is an opportunity for banks to take back market share from private credit funds,” Mark Zandi, Moody’s chief economist, told CNBC in an email.
He emphasized, “Interest rates have fallen and banking regulations have been relaxed. Private credit lenders are also struggling due to the effects of aggressive lending in the past.”
The rapid rise in private credit was fueled in part by the withdrawal of banks. In the wake of the Fed’s aggressive interest rate hikes and the 2023 banking crisis, lenders have ramped up underwriting and exited riskier deals. Borrowers, especially private equity firms, are increasingly turning to direct lenders, which offer faster execution and more lenient terms.
The tug of war has just begun. As regulations ease, it is natural for banks to want to regain some of their private credit market share.
Jeffrey Hook
Johns Hopkins Carey Business School
At its peak, the change was dramatic. Banks’ share of buyout loans over $1 billion fell from about 80% in the previous five years to just 39% in 2023, according to PitchBook data. Since then, its share has recovered to just over 50% in 2025.
And the tide may change even further.
Private credit faces increasing challenges. Years of aggressive lending is starting to backfire as rising interest rates make it harder for heavily indebted individuals to repay their loans, increasing the risk of default. Investor demand for liquidity has also increased, with some customers looking to withdraw their funds after years of locking up their capital.
Moody’s Zandi expects the sector to “suffer further credit challenges in the coming months”, citing the impact of geopolitical tensions, rising borrowing costs and structural pressures in industries such as software. Consumers and medical institution borrowers may also be burdened.
Regulatory changes provide a tailwind
In the medium term, regulatory changes may further tilt the competitive playing field.
“Our expectations for regulatory relief from the Trump administration include the possibility of weakening implementation of the Basel III endgame, with the U.S. Treasury clearly aiming to shift corporate lending back to the banking sector,” Shannon Saccocia, chief investment officer at Neuberger Berman, told CNBC in an email.
The Basel III “Endgame” framework is a regulatory review finalized in 2017 in the wake of the 2008 global financial crisis. It aims to standardize the way big banks calculate risk and establish capital floors that require lenders to hold more reserves for loans, especially high-risk corporate and leveraged loans.
As a result, market veterans say the competitiveness between bank loans and private credit funds has declined in recent years.
Saccocia added, a position echoed by other market veterans, that any weakness or reversal in the final stages of Basel III will intensify competition for private credit.
“Banks urgently need to fill the void created by more prudent private credit lending,” Zandi said, pointing to a more favorable regulatory background and improved funding conditions for traditional financial institutions.
Recent Federal Reserve proposals to adjust the regulatory capital framework “could allow banks to become more competitive on the lending side in hopes of regaining at least some of their original commercial banking footing,” Lukacki noted.
Recent transactions, such as multibillion-dollar leveraged loan financings for Electronic Arts and Sealed Air, demonstrate banks’ strong appetite for executing “jumbo” transactions when market conditions permit.
Private credit remains competitive
However, the dominance of private credit has not yet been broken. Direct lenders continue to compete aggressively, offering unitranche loans that bundle different types of debt into one package at a single interest rate.
For example, Blackstone and Ares were among 33 financial institutions said to have provided approximately $5 billion in loans to support investment firm Thoma Bravo’s acquisition of logistics company WWEX Group, highlighting that private credit firms can still finance large acquisition deals even as banks begin to re-enter the market.
Marina Lukatsky, head of global credit and U.S. private equity at Pitchbook, said the expected pick-up in acquisitions and deals has yet to materialize this year, as uncertainties around trade policy, interest rates and geopolitics have slowed activity. The reduction in transactions has reduced the demand for funds in both banks and private credit.
He added that for banks to make a meaningful comeback, they need to make borrowing costs more competitive for syndicated loans, which are large loans arranged by banks and financed by a group of lenders. Additionally, large-scale acquisition activity should pick up and the broader economic outlook should improve.
Importantly, private credit holds structural advantages such as speed, certainty of execution, and flexible terms that are difficult for banks to replicate, and some borrowers may continue to value these in volatile markets, some experts say.
However, a comeback is just around the corner.
“The tug of war has just begun,” said Jeffrey Hook, senior lecturer in finance at Johns Hopkins Carey Business School.
“Now that regulations have eased, it makes sense that banks would want to regain some of their private credit market share.”
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