Traditional lenders target lost ground
Large Wall Street banks may be approaching an inflection point in their fight to recover business lost to private credit funds. After years in which direct lenders expanded rapidly and became a dominant force in leveraged buyout financing, several market signals now suggest that the competitive gap may be narrowing. Easing regulatory pressure, lower interest rates and emerging stress inside private credit are giving banks a stronger case to reassert themselves in areas they once controlled.
For much of the past decade, private credit gained momentum as banks stepped back from riskier corporate lending. That retreat accelerated after aggressive Federal Reserve rate increases and the regional banking turmoil of 2023, when traditional lenders tightened standards and pulled away from more leveraged transactions. Private equity firms and other borrowers increasingly turned to direct lenders, which offered quicker execution and more flexible structures at a time when bank financing had become harder to secure.
The shift was substantial. According to PitchBook data, banks accounted for only 39 percent of buyout financings above 1 billion dollars in 2023, a sharp fall from roughly 80 percent during the prior five years. That share has since climbed back to slightly above 50 percent in 2025, suggesting that banks are already beginning to regain some lost ground. Economists and market strategists say the recovery could continue if current trends hold.
Mark Zandi, chief economist at Moody’s, said this may be a favorable moment for banks to take back market share from private credit funds. He pointed to declining interest rates, looser regulation and growing problems linked to aggressive lending by direct lenders. In his assessment, the conditions that helped private credit flourish are no longer as one sided as they once were.
Private credit faces pressure from past risks
Private credit’s success was built partly on its willingness to move faster and lend on terms that banks often would not match. But the same aggressiveness that powered its rise is now creating vulnerabilities. Higher borrowing costs have made it more difficult for heavily indebted companies to service loans, increasing the risk of defaults. At the same time, some investors are seeking liquidity after years of committing capital to structures that were designed to remain locked up for longer periods.
Zandi expects more credit strain to emerge in coming months, citing the combined effect of geopolitical tension, elevated funding costs and structural weakness in sectors such as software. He also flagged the possibility that borrowers in consumer facing industries and healthcare could come under added pressure. Those concerns matter because they strike at the foundation of the private credit model, which expanded rapidly by promising dependable returns in areas where banks had become more cautious.
The result is a more complicated environment for direct lenders. They remain active and well capitalized, but they are now operating in a market where loan performance, refinancing risk and investor patience may all become harder to manage. That does not mean private credit is retreating outright. It does mean banks have a stronger opening to compete.
Regulatory change could tilt the balance
The medium term outlook may also be shaped by policy. Investors are increasingly focused on whether changes to the regulatory framework under President Donald Trump could ease capital burdens on banks and make leveraged lending more attractive again. A softer approach to the Basel III Endgame has become one of the main themes in this debate.
The Basel III Endgame framework was finalized in 2017 after the global financial crisis and was intended to standardize risk calculations and require large banks to hold more capital against certain loans, especially those considered higher risk. Market veterans have argued that those requirements made it harder for banks to compete with private credit funds, which were not subject to the same constraints and could therefore offer more appealing terms.
Shannon Saccocia, chief investment officer at Neuberger Berman, said expectations for deregulation include a likely weakening of that implementation, with the U.S. Treasury aiming to direct more business lending back into the banking system. Other market participants have taken a similar view, saying that a looser regulatory structure could increase competition for private credit providers and make traditional lenders more aggressive in syndicated and leveraged loan markets.
Recent Federal Reserve proposals to adjust the capital framework have added to that view. Market observers say such changes could help banks become more competitive in lending and reclaim at least part of the commercial banking position they previously held.
Direct lenders remain a formidable rival
Even so, the recovery story for banks is not yet complete. Private credit firms continue to show they can finance very large deals. Blackstone and Ares were among 33 lenders that reportedly supplied about 5 billion dollars to support Thoma Bravo’s acquisition of WWEX Group, a sign that direct lenders still have the scale to compete in large buyouts even as banks push back into the market.
Private credit also retains structural strengths that borrowers continue to value. Direct lenders can often move faster, provide greater certainty of execution and offer flexible packages such as unitranche loans that combine several types of debt into one structure with a single interest rate. In volatile markets, those qualities can still be more attractive than a conventional syndicated loan process.
Marina Lukatsky, PitchBook’s global head of credit and U.S. private equity, said the hoped for rebound in buyouts and dealmaking has not yet arrived this year, with uncertainty over trade policy, interest rates and geopolitics holding activity back. With fewer deals to finance, both banks and private credit firms are competing in a smaller pool of opportunities. For banks to mount a more meaningful comeback, syndicated loan pricing will need to improve, large buyouts will need to recover and the broader economic outlook will need to become more supportive.
Jeffrey Hooke of Johns Hopkins Carey Business School said the contest is only beginning. As rules become less restrictive, he said, it is natural that banks will try to reclaim a portion of the market they gave up. The next phase of the credit cycle may depend on whether they can do so without losing the discipline that drove borrowers elsewhere in the first place.
