New Capital Rules Boost Private Credit Sector

Stricter post-2008 capital rules previously drove non-bank lending, creating a trillion-plus dollar private-credit market. U.S. regulators are now developing new capital rules to promote bank lending, yet these changes also encourage banks to lend more to non-bank entities.

This occurs because certain bank lending to other lenders qualifies as a securitization under the new rules, allowing for a more senior "tranche" of exposure with a lower risk weighting. This development challenges the perception of banks and private capital managers as adversaries.

However, the private credit market faces liquidity pressures, as evidenced by Stone Ridge Asset Management meeting only 11% of redemption requests in one fund. Bank of America also cautioned clients about European bank exposure to private credit shocks, and firms like Blue Owl and Blackstone experienced market value declines.