Wall Street banks may finally be getting a long-awaited opening to claw back market share from private credit lenders.
After a decade in which private credit lenders grew rapidly and took over a large share of financing for leveraged buyouts, signs of strain in that sector, along with easing bank rules, may now be shifting the balance.
"This is an opportune time for banks to regain market share from private credit funds," Moody's chief economist Mark Zandi told CNBC in an email.
"Interest rates have declined and banking regulation has eased. Private credit lenders are also struggling with the fallout from their previously aggressive lending," he highlighted.
Private credit's rapid ascent was fueled in part by banks' retreat. Following the Federal Reserve's aggressive rate hikes and the 2023 banking crisis, lenders tightened underwriting and pulled back from riskier deals. Borrowers, particularly private equity firms, increasingly turned to direct lenders offering faster execution and looser terms.
The tug of war is just starting. The rules have been relaxed, so it's only natural that banks want to get back some of their market share in private credit.Jeffrey HookeJohns Hopkins Carey Business School
At its peak, the shift was dramatic. According to PitchBook data, banks' share of buyout financings above $1 billion fell to just 39% in 2023, down from about 80% in the five years prior. That share has since recovered to just over 50% in 2025.
And the tide may be turning further.
Private credit is facing mounting challenges. Years of aggressive lending are starting to backfire, as higher interest rates make it harder for heavily indebted borrowers to repay loans and increase default risks. Investor demand for liquidity is also rising, with some clients seeking to pull money after years of locking up capital.
Moody's Zandi expects the sector to "experience more credit problems in the coming months," citing fallout from geopolitical tensions, higher borrowing costs and structural pressures in industries such as software. Consumer and healthcare borrowers may also come under strain.
Regulatory changes offering tailwinds
Over the medium term, regulatory changes could also further tilt the playing field.
"Our anticipation of deregulation from the Trump administration includes a likely weakening of the Basel III Endgame implementation, with the U.S. Treasury explicitly aims to redirect business lending back into the banking sector," Shannon Saccocia, chief investment officer at Neuberger Berman, told CNBC via email.
The Basel III "Endgame" framework is a regulatory overhaul finalized in 2017 in the wake of the 2008 global financial crisis. It was designed to standardize how large banks calculate risk and to establish a capital floor that requires lenders to hold more reserves against loans, particularly higher-risk corporate and leveraged lending.
That has made bank lending less competitive versus private credit funds in recent years, said market veterans.
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.
"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.
Recent Federal Reserve proposals to adjust the regulatory capital framework could "position banks to be more competitive on the lending front in hopes of regaining at least some share of their original commercial banking foothold," noted Lukatsky.
Recent deals, such as the multi-billion-dollar leveraged loan financings for Electronic Arts and Sealed Air, signal a strong appetite among banks to execute "jumbo" transactions when market conditions allow.
Private credit still competitive
However, private credit's grip is far from broken just yet. Direct lenders continue to compete aggressively, offering unitranche loans that bundle different types of debt into one package at a single interest rate.
Blackstone and Ares, for example, were among 33 lenders that reportedly provided about $5 billion in financing to back investment firm Thoma Bravo's acquisition of logistics company WWEX Group, underscoring how private credit firms can still fund large buyout deals even as banks begin to re-enter the market.
Pitchbook's global head of credit and U.S. private equity Marina Lukatsky noted that the expected rebound in buyouts and dealmaking has yet to materialize this year, as uncertainty around trade policy, interest rates and geopolitics has slowed activity. With fewer deals taking place, demand for financing has declined across both banks and private credit.
For banks to make a meaningful comeback, borrowing costs in syndicated loans, which are large loans arranged by banks and funded by a group of lenders, need to become more competitive, she added. Additionally, large buyout activity needs to pick up, and the broader economic outlook needs to improve.
Crucially, private credit retains structural advantages that are difficult for banks to replicate, including speed, certainty of execution and flexible conditions, which some borrowers may continue to value in volatile markets, noted some experts.
That said, a comeback is on the cards.
"The tug of war is just starting," said Jeffrey Hooke, senior lecturer in finance at Johns Hopkins Carey Business School
"The rules have been relaxed, so it's only natural that banks want to get back some of their market share in private credit."