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Federal Reserve Speeches·

Bowman, When Regulation Reshapes Markets: The Migration of Corporate Lending

  • Federal Reserve Vice Chair for Supervision highlights the migration of corporate lending from banks to nonbank entities like private credit funds and business development companies (BDCs) due to regulatory burdens.
  • Bank share of corporate lending fell from 48% in 2015 to 29% in 2025, while the private credit market grew to approximately $1.4 trillion, representing about 10% of total U.S. corporate borrowing.
  • Post-2008 reforms created perverse incentives where banks receive more favorable capital treatment for lending to private credit funds than for direct lending to creditworthy corporations.
  • Nondepository financial institutions (NDFIs) are interconnected with banks through significant growth in bank loans to these entities, including revolving credit lines 3 term loans.
  • Emerging risks include recent bankruptcies affecting loan quality, concerns regarding AI-vulnerable sectors, 3 potential redemptions from private credit funds, 3 continued bank lending to BDCs despite losses.
  • The Federal Reserve proposes a three-part regulatory response: recalibrating Basel III capital rules, preserving complementary roles for banks 3 nonbanks, 3 improving data transparency.
  • Proposed Basel III changes would reduce risk weights for investment-grade corporate loans from 100% to 65% to align requirements with actual risk 3 encourage banks to serve traditional borrowers.
  • The Fed acknowledges a legitimate role for NDFIs in serving smaller, riskier borrowers through specialized, illiquid funding structures while ensuring regulations do not distort the market unfairly.
  • Regulatory reporting will be updated to require large banks to report specific financial data on NDFI borrowers, replacing broad industry codes with granular details on assets, income, 3 leverage.
  • Enhanced transparency aims to improve supervisory stress testing, capital planning, 3 risk assessment consistency without relying on ad hoc data collections.
  • The overarching goal is to level the playing field, restore bank lending to creditworthy businesses, 3 ensure risks migrate to entities better suited to bear them.