Wall Street Banks Eye Market Share from Private Credit Lenders

Wall Street banks are poised to reclaim market share from private credit lenders, a sector that has rapidly expanded over the past decade, particularly in financing leveraged buyouts. Recent signs of strain within private credit, coupled with easing banking regulations, have created a favorable environment for banks to re-enter this market. Mark Zandi, chief economist at Moody's, noted that "this is an opportune time for banks to regain market share from private credit funds," as declining interest rates and relaxed banking rules facilitate this shift.

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Historically, banks' share of buyout financings exceeding $1 billion plummeted from approximately 80% to just 39% by 2023, largely due to their retreat following aggressive Federal Reserve rate hikes and a banking crisis that year. This retreat allowed private equity firms to increasingly rely on direct lenders, who offered quicker execution and more lenient terms. However, as of 2025, banks have managed to recover their share to just over 50%, indicating a potential turning tide.

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Private credit lenders are now grappling with the repercussions of their aggressive lending strategies. Higher interest rates have intensified repayment difficulties for heavily indebted borrowers, leading to increased default risks. Additionally, there is a rising demand for liquidity among investors, with some seeking to withdraw funds after prolonged capital lock-up periods. Zandi anticipates that the sector will "experience more credit problems in the coming months," influenced by geopolitical tensions and structural pressures in industries such as software, consumer, and healthcare.

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The Basel III "Endgame," a regulatory framework established in 2017 following the 2008 financial crisis, has historically made bank lending less competitive compared to private credit. This framework mandates that banks hold more reserves against higher-risk loans. However, potential weakening or reversal of these regulations could enhance banks' competitiveness in the lending market. Shannon Saccocia, chief investment officer at Neuberger Berman, emphasized that a shift in regulatory policy could enable banks to "quickly fill any void left by more cautious private credit lending."

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Recent proposals from the Federal Reserve to adjust the regulatory capital framework could further position banks favorably in the lending landscape. Notable transactions, such as the multi-billion-dollar leveraged loans for Electronic Arts and Sealed Air, illustrate banks' renewed appetite for large-scale financing.

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Despite banks' efforts to regain market share, private credit firms remain formidable competitors. They continue to offer innovative financing solutions, such as unitranche loans, which consolidate various debt types into a single package at a unified interest rate. Notably, firms like Blackstone and Ares participated in providing approximately $5 billion in financing for Thoma Bravo's acquisition of WWEX Group, showcasing private credit's capacity to support substantial buyout deals even as banks re-enter the market.

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• “This is an opportune time for banks to regain market share from private credit funds,” — Mark Zandi, Chief Economist, Moody's

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• “Banks should quickly fill any void left by more cautious private credit lending, said Zandi, pointing to a more favorable regulatory backdrop and improving funding conditions for traditional lenders.” — Mark Zandi, Chief Economist, Moody's

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• “A weakening or reversal in the Basel III Endgame will raise competition for private credit lenders, Saccocia added, a stance echoed by other market veterans.” — Shannon Saccocia, Chief Investment Officer, Neuberger Berman

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As the landscape of leveraged financing evolves, the competition between Wall Street banks and private credit lenders is set to intensify, with regulatory changes and market conditions playing pivotal roles in shaping future dynamics.

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