By Ted O’Connor, SVP, Arcesium
Wall Street is making inroads in reclaiming lost credit business by modernizing systems and embracing a new hybrid public-private credit world
In late June, it was reported that Meta had approached a number of giant private credit shops looking for $29 billion to fund AI data center construction – with bank financing notably absent from the story. So why didn’t Meta go to banks? Was it seeking more flexible terms? Was it looking for a more nimble approach? And what do significant deals like this, involving no bank lenders, say about the state of the commercial lending market today?
Once upon a time, private credit served businesses that preferred to remain private longer, or those that were shut out of traditional bank financing. But in recent years, private lenders have dominated the commercial lending market given their flexibility in comparison to banks who have faced stricter capital requirements and retreated from the space.
However, with those capital requirements now easing under Trump, and in a bid to reclaim a larger piece of the private credit pie, banks have been making a play to recapture lending opportunities. Some banks are re-entering the private credit space by engaging in more direct lending to private borrowers using their own balance sheets, some are pursuing opportunities through their asset management arms, and some are even partnering with third-party asset managers to achieve more exposure.[i]
Private credit’s first, second and third punch
But taking on private credit funds is no straightforward task, as they are now thoroughly ingrained in the lending space. In addition to the massive Meta deal, Flexera Software has turned to private debt firms to source $3 billion to pay a dividend to its PE owner[ii]. Meanwhile it was reported that 19 different private credit lenders, including big names like Sixth Street, Blue Owl, and Oaktree bested the banks for the €6.5 billion loan to online classifieds group Adevinta.[iii]
Furthermore, US regulators are determined to fertilize private markets soil, and the CFTC and SEC recently pushed important compliance dates down the road, such as Form PF, or dissolved proposals completely – removing potential barriers for private lenders.
In this environment, private credit firms are continuing their expansion, offering new strategies such as asset-based financing, infrastructure, and secondaries. They’re also offering higher leverage ratios to potential borrowers, particularly for companies owned by PE firms, so that they are poised to continue to compete with banks’ syndicated loan offerings as the sell-side strikes back.
The sell-sides comeback
Just as US regulators are widening lanes for private credit shops, others are doing the same for banks. The OCC and US Treasury appear keen to level the playing field for lending opportunities and are pushing for changes to do so. This could introduce more transparency or stricter reporting requirements for private credit, potentially reducing its competitive advantage or facilitating greater bank involvement. What’s more, regulators are accepting comments on a proposal to set the enhanced supplementary leverage ratio based on a banks’ overall systemic risk – something that would help to further free up banks‘ capacity to lend. With this shift, competitive dynamics will remain complex, as easing regulatory frameworks are helping both private firms and Wall Street banks.
Wall Street banks go where the margins are
Clearly, banks are not forfeiting the future of lending to private shops. But they are shifting to more asset-light business models. They are choosing distribution models and transaction structures that work for them. For example, JPMorgan assembled a co-lending group and in February, devoted a $50 billion push in which it originates the loans and then invests in them alongside the other firms. Morgan Stanley has partnered with insurance companies and pension funds to syndicate credit risk without using its own balance sheet. In this way, banks are financing part of the private credit boom instead of the loans themselves.[iv] Some banks like Wells Fargo and Goldman Sachs are also investing in private credit platforms, getting exposure to performance fees rather than just lending fees. As private credit continues to grow, banks have become willing partners by providing loan facilities or through joint ventures.[v]
As investment banks need to follow larger margins, they will likely become more involved in lending going forward using structured finance products such as Residential Mortgage-Backed Securities (RMBS), Commercial Mortgage-Backed Securities (CMBS), Collateralized Debt Obligations (CDOs), and Collateralized Loan Obligations (CLOs).
The push and pull dynamic shines light to tech potholes
The tug-of-war for a bigger share of the specialty lending business is evolving from a clear loss for banks to private credit, into banks strategically responding through collaboration, and a renewed focus on certain structured lending products. However, these products bring many data complexities and risk management intricacies that banks must now manage. Having retreated from their dominance in the lending space, many banks now lack the technology and data infrastructure to handle the complexities of these structured products at scale. But opportunity is calling, and technology must follow.
A transformation across banking is happening
As older, fragmented technology begins impacting efficiency, balance sheet optimization, and profitability, the time for change arrives. Banks, unlike digital native private debt firms, are hamstrung by a behemoth of disparate systems which can limit their speed, efficiency and risk management abilities, and keeps non-investment costs high.
Private credit, asset-based financing and structured products – all key areas where banks are pursuing opportunities – are strategies that demand complex, data-based workflows at high volumes. Information is often fragmented, unstructured and in need of harmonization, and traditional banks, sometimes with 30-year-old systems, struggle with agility. But reclaiming the lending space and merging into new business models is only as good as a banks’ ability to scale these lines of business.
Because of this, tier-one banks are now forging ahead with substantive data and digital transformation initiatives across their data and operating systems in a bid to drive efficiencies and enhance their market position when it comes to lending and structured product opportunity.
Becoming a modern bank to compete for modern credit business
Digital transformation initiatives will enable banking institutions to level the playing field with non-bank competitors, as well as with other big banks, as activity in the private markets continues to present major opportunities.
Today’s financial landscape demands that sell-side institutions think holistically about risk when growing strategies and enhancing exposure to certain markets. The IMF warns that “banks, as the foundation of the system, must be resilient to adverse shocks, including those stemming from their increasing interconnections with nonbanks.”[vi] This means that reliable, accessible, transparent data capable of intelligent analysis is the foundation upon which a banks‘ movement back into the lending space, and their associated digital transformation, must be built.
Systems transformation to thrive in a transforming marketplace
Private credit firms and bank lenders can no longer be neatly slotted into separate categories as competing entities, as today they share a considerable root structure underneath the financial system. This co-existence will long continue, even as banks ramp up lending activity through various models and structures. Banks that are focused on reclaiming ground in private credit through partnership, structured products or direct lending, must prioritize modernization in order to come out on top.
For banks trying to scale their lending business in a converging marketplace that is exploding with data – cloud-based data technologies present a significant opportunity to close the gap with their competitors. Technology modernization is vital if the sell-side hopes to not only to claw back lending business, but run and scale it efficiently while managing risk and cost. Banks that postpone their data and technology strategy any longer will fail to leverage the vast universe of information and operational efficiencies that would enable them to thrive in a complex ecosystem – one that evolved substantially while they were away.
###
[i] https://www.bankingsupervision.europa.eu/press/blog/2025/html/ssm.blog20250603~7af4ffc2d7.en.html
[ii] https://www.bloomberg.com/news/articles/2025-07-10/private-credit-pitches-more-leverage-to-win-over-deals
[iii] https://pitchbook.com/news/articles/goldman-sachs-leads-record-6-5b-direct-lending-loan-for-adevinta
[iv] https://www.bostonfed.org/publications/current-policy-perspectives/2025/could-the-growth-of-private-credit-pose-a-risk-to-financial-system-stability.aspx
[v] IMF, Enhancing Financial Stability for Resilience During Uncertain Times, April 22, 2025. https://www.imf.org/en/Blogs/Articles/2025/04/22/enhancing-financial-stability-for-resilience-during-uncertain-times
[vi] https://www.imf.org/en/Blogs/Articles/2025/04/22/enhancing-financial-stability-for-resilience-during-uncertain-times#:~:text=For%20a%20start%2C%20enhanced%20reporting,are%20sound%20and%20operationally%20resilient.
