Key Takeaways
- • The OCC and FDIC announced in December 2025 that they were formally withdrawing from the 2013 Leveraged Lending Guidance and related FAQs, which they said had driven a significant drop in regulated banks' leveraged lending market share.
- • Federal Reserve Governor Michelle Bowman, Vice Chair for Supervision, warned that shifting corporate lending to the shadow banking system can transmit losses back to regulated banks through their credit lines to nonbank lenders.
- • Under the US standardized approach, bank loans to corporate borrowers generally carry a 100% risk weight, while bank loans to private credit funds or BDCs can qualify for a securitization treatment with a 20% risk weight floor, creating an incentive to lend to intermediaries.
- • BDCs typically make loans at spreads of 400 basis points or more, versus 200 basis points or less for large banks, according to Bowman, reflecting private credit's focus on smaller and riskier borrowers.
Summary
A White & Case LLP analysis examines the migration of US corporate lending from commercial banks to private credit lenders and other non-depository financial institutions (NDFIs) since the 2008-2009 financial crisis. The article describes a trend in which banks have increasingly substituted direct corporate lending with credit lines and other funding to private credit funds, business development companies (BDCs) and other NDFIs. Federal Reserve Governor Michelle Bowman has said that the growth of shadow banking can have significant consequences for credit availability over economic cycles, with losses ultimately transferred back to regulated depository institutions, as appears to have occurred after 2008.
The article attributes part of the shift to post-crisis prudential regulation. Bowman has argued that some capital requirements became excessive relative to underlying risk, prompting banks to pare back corporate lending or raise its cost. Under the standardized approach, most corporate exposures carry a 100% risk weight with no reduction for credit rating. By contrast, a bank loan to a private credit fund or BDC can in some cases be treated as a securitization exposure under the simplified supervisory formula approach, with a 20% risk weight floor, so bank lending to intermediaries can require substantially less capital than direct corporate lending.
The Leveraged Lending Guidance issued in 2013 is also identified as a significant driver. It set prescriptive expectations, including that leverage above 6x Total Debt/EBITDA after planned asset sales raises concerns for most industries, and banks risked examiner criticism even for loans originated for distribution. The OCC and FDIC announced in December 2025 that they were withdrawing from the guidance and FAQs, stating that it had pushed leveraged lending outside the regulatory perimeter. The Federal Reserve had not yet announced whether it would follow. Federal Reserve and FDIC staff publications have said the guidance likely contributed to the decline in bank market share in riskier corporate lending, and that private credit funds have stepped in to supply that market.
Beyond regulation, the article cites business factors. Bowman has said NDFIs serve legitimate functions through specialization, speed of origination and flexibility, and that they are well suited to smaller and riskier borrowers financed with locked-in institutional capital. A Federal Reserve staff publication links private credit growth to private equity buyout financing needs. Borrowers and sponsors may favor private credit for faster origination without syndication or ratings, and for customized terms such as payment-in-kind interest and delayed-draw facilities, as well as easier renegotiation with a single or small group of lenders. The article notes that private credit loans tend to be more covenant-heavy than public leveraged loans.
The article attributes part of the shift to post-crisis prudential regulation. Bowman has argued that some capital requirements became excessive relative to underlying risk, prompting banks to pare back corporate lending or raise its cost. Under the standardized approach, most corporate exposures carry a 100% risk weight with no reduction for credit rating. By contrast, a bank loan to a private credit fund or BDC can in some cases be treated as a securitization exposure under the simplified supervisory formula approach, with a 20% risk weight floor, so bank lending to intermediaries can require substantially less capital than direct corporate lending.
The Leveraged Lending Guidance issued in 2013 is also identified as a significant driver. It set prescriptive expectations, including that leverage above 6x Total Debt/EBITDA after planned asset sales raises concerns for most industries, and banks risked examiner criticism even for loans originated for distribution. The OCC and FDIC announced in December 2025 that they were withdrawing from the guidance and FAQs, stating that it had pushed leveraged lending outside the regulatory perimeter. The Federal Reserve had not yet announced whether it would follow. Federal Reserve and FDIC staff publications have said the guidance likely contributed to the decline in bank market share in riskier corporate lending, and that private credit funds have stepped in to supply that market.
Beyond regulation, the article cites business factors. Bowman has said NDFIs serve legitimate functions through specialization, speed of origination and flexibility, and that they are well suited to smaller and riskier borrowers financed with locked-in institutional capital. A Federal Reserve staff publication links private credit growth to private equity buyout financing needs. Borrowers and sponsors may favor private credit for faster origination without syndication or ratings, and for customized terms such as payment-in-kind interest and delayed-draw facilities, as well as easier renegotiation with a single or small group of lenders. The article notes that private credit loans tend to be more covenant-heavy than public leveraged loans.
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