The private credit sector is facing numerous crises, Wall Street investment banks are taking the opportunity to strike back, and a financing battle is about to erupt!

```

Cracks in the private credit market are providing traditional banks with a long-awaited window for a counterattack.

On March 27, CNBC reported that, as risks gradually emerge after aggressive lending by private credit institutions and the regulatory environment becomes more relaxed, Wall Street banks are quietly gaining conditions to reclaim market share in corporate financing. Moody's Chief Economist Mark Zandi said, "For banks, now is a favorable opportunity to regain market share from private credit funds."

Signs of a banking rebound have already begun to appear. According to PitchBook data, banks' share in leveraged buyout financing over $1 billion dropped to 39% in 2023, a steep decline from about 80% over the previous five years; but this proportion has rebounded to over 50% by 2025. Recent multi-billion dollar leveraged loan financings for companies like Electronic Arts and Sealed Air further demonstrate that banks, when conditions permit, are more eager to compete for large deals.

However, private credit has not surrendered. Institutions like Blackstone and Ares participated in a roughly $5 billion financing deal, providing funds for investment firm Thoma Bravo to acquire logistics company WWEX Group, indicating that direct lenders still have the capacity to support large-scale M&A.

PitchBook's Global Credit and U.S. Private Equity Head Marina Lukatsky noted, due to trade policy, interest rates, and geopolitical uncertainties, the expected recovery in M&A has yet to materialize this year, and overall demand for financing remains under pressure. Jeffrey Hooke, Senior Lecturer in Finance at Johns Hopkins Carey Business School, described this competition as "the tug-of-war has only just begun."

Cracks in Private Credit Emerge, Aftereffects of Aggressive Lending Ferment

The rapid rise of private credit was largely due to banks' voluntary retreat. After the Federal Reserve's aggressive rate hikes and the U.S. banking crisis in 2023, traditional banks tightened lending standards and avoided high-risk transactions, prompting borrowers—especially private equity firms—to turn to direct lenders that executed deals faster and offered more flexible terms.

Now, this paradigm is facing reversal pressure. Years of aggressive lending are beginning to backfire: In a high-interest environment, heavily indebted borrowers' ability to repay has declined, and default risks are rising. Meanwhile, investor liquidity demands are heating up, with some clients seeking redemption after locking in funds for long periods.

Mark Zandi anticipates that in the coming months, the private credit industry will "see more credit issues," triggered by geopolitical tensions, high borrowing costs, and structural pressures in industries like software; borrowers in consumer and healthcare sectors may also face impact.

Loose Regulation Provides Tailwind, Capital Rule Adjustment Favors Traditional Banks

In the medium term, regulatory changes are likely to further tilt toward banks. Neuberger Berman's Chief Investment Officer Shannon Saccocia said, the Trump administration's deregulation expectations include possibly weakening the implementation of the final Basel III framework, “The U.S. Treasury has explicitly made returning corporate loans to the banking system a policy goal.”

The final Basel III framework, developed in 2017 after the 2008 global financial crisis, is a regulatory reform aimed at standardizing risk measurement for large banks and requiring banks to hold more capital against corporate loans, especially high-risk leveraged loans. Multiple market participants have said this framework has weakened banks' competitiveness relative to private credit funds in recent years.

Saccocia pointed out that if the final Basel III framework is weakened or reversed, it will have a competitive impact on private credit institutions. Marina Lukatsky also noted that the Fed's recent proposal to adjust capital regulatory frameworks could "make banks more competitive on the lending side, aiming to recapture some of their original commercial banking territory." Mark Zandi said that a more relaxed regulatory environment and improved financing conditions will enable banks to quickly fill the space vacated by private credit's increasing conservatism.

Structural Advantages of Private Credit Remain, Banks Still Face Obstacles in Recovery

Despite rising pressures, private credit's core competitiveness has not disappeared. Direct lenders proactively offer "unitranche loans," which combine various types of debt into a single interest rate package. With strong execution certainty, rapid delivery, and flexible terms as structural advantages, these loans remain attractive to certain borrowers even during market volatility.

Marina Lukatsky pointed out that for banks to achieve a meaningful rebound, several conditions must be met simultaneously: syndicated loan borrowing costs must become more competitive, large leveraged buyout activity must significantly pick up, and the macroeconomic outlook must improve. The current sluggish state of the M&A market means that both banks and private credit are seeing shrinking demand for financing, reducing the space for competition.

Jeffrey Hooke takes a pragmatic view of this competitive landscape: "The rules have relaxed. For banks to win back market share in private credit is just a natural development." But he also emphasized that this contest is far from settled—"the tug-of-war has only just begun."

Risk Warning and DisclaimerThe market carries risks, and investment requires caution. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suited to their particular circumstances. Investments made on this basis are at your own risk. ```