Private credit’s cracks spark a new tug of war with Wall Street banks
Wall Street, Manhattan, New York.
Andrey Denisyuk | An | Getty Images
Wall Street banks may finally be getting a long-awaited opening to take back market share from private lenders.
After a decade in which private lenders grew rapidly and took over much of the financing for leveraged buyouts, signs of tension in this sector as banking rules eased may now be tipping the scales.
“This is an opportune time for banks to regain market share from private loan funds,” Moody’s chief economist Mark Zandi said in an email to CNBC.
“Interest rates have fallen and banking regulations have eased. Private lenders are also struggling with the effects of the aggressive lending they previously made,” he emphasized.
The rapid rise of private credit was partly due to the decline of banks. In the wake of the Federal Reserve’s aggressive rate hikes and the 2023 banking crisis, lenders have tightened underwriting and pulled back from risky deals. Borrowers, especially private equity firms, have increasingly turned to direct lenders that offer faster execution and looser terms.
The tug of war is just beginning. The rules have been relaxed, so it’s natural that banks would want to take back some of their market share in private loans.
Jeffrey Hooke
Johns Hopkins Carey School of Business
At its peak, the change was dramatic. Banks’ share of acquisition financing over $1 billion has fallen to just 39% in 2023, from nearly 80% in the previous five years, according to PitchBook data. This share has since increased to just over 50% in 2025.
And the tide may be turning worse.
Private credit faces increasing challenges. Years of aggressive lending are beginning to backfire as high interest rates make it harder for heavily indebted borrowers to repay loans and increase their risk of default. Investors’ demand for liquidity is also increasing; Some clients are trying to withdraw money after locking up capital for years.
Moody’s Zandi expects the sector to “experience further credit problems in the coming months,” citing the effects of geopolitical tensions, high borrowing costs and structural pressures in sectors such as software. Consumer and health care debtors may also come under pressure.
Regulatory changes presenting tailwinds
In the medium term, legislative changes may further change the playing field.
“Our expectation of deregulation from the Trump administration includes a likely weakening of Basel III Endgame enforcement, with the U.S. Treasury clearly aiming to redirect business loans to the banking sector,” Shannon Saccocia, chief investment officer at Neuberger Berman, told CNBC via email.
The Basel III “Endgame” framework is a regulatory overhaul completed in 2017 following the 2008 global financial crisis. It was designed to standardize how big banks calculate risk and create a capital base that would require lenders to hold more reserves against loans, especially high-risk corporate and leveraged loans.
This has made bank loans less competitive compared to private loan funds in recent years, market experts said.
Saccocia added that a weakening or reversal of the Basel III Endgame would increase competition for private lenders, and other market veterans have taken a similar stance.
“Banks must quickly fill the gap left by more cautious private credit lending,” Zandi said, pointing to a more positive regulatory environment and improved funding conditions for traditional lenders.
Lukatsky noted that the Federal Reserve’s recent proposals to adjust the regulatory capital framework “could make banks more competitive on the lending front in hopes of regaining at least some of their original commercial banking foothold.”
Recent deals, such as the multibillion-dollar leveraged loan financing for Electronic Arts and Sealed Air, signal a strong appetite among banks to undertake “jumbo” transactions when market conditions allow.
Private credit remains competitive
However, the dominance of private credit has not yet been broken. Direct lenders continue to compete aggressively by offering unit rate loans that bundle different types of debt into a single package with a single interest rate.
Blackstone and Ares, for example, were among the 33 lenders that made the loan. reportedly achieved Nearly $5 billion in financing to support investment firm Thoma Bravo win The CEO of logistics company WWEX Group highlights how private lenders are able to finance large acquisition deals even as banks begin to re-enter the market.
Marina Lukatsky, Pitchbook’s head of global credit and US private equity, said the expected recovery in acquisitions and deals has not yet materialized this year as uncertainty over trade policy, interest rates and geopolitics has slowed activity. With fewer deals taking place, demand for financing has decreased in both banks and private loans.
For banks to make a meaningful return, borrowing costs must become more competitive on syndicated loans, which are large loans arranged by banks and financed by a group of lenders, he said. Additionally, major purchasing activity needs to accelerate and the broader economic outlook needs to improve.
Some experts have noted that private credit has structural advantages that are difficult for banks to imitate, including speed, certainty of execution and flexible terms, and that some borrowers may continue to value in unstable markets.
However, a comeback is on the cards.
“The tug of war is just beginning,” said Jeffrey Hooke, a senior lecturer in finance at Johns Hopkins Carey Business School.
“The rules have been relaxed, so it’s only natural that banks would want to take back some of their market share in private loans.”
