Federal Reserve Vice Chair for Supervision Michelle Bowman warned that a decade of post-crisis banking rules has driven corporate lending out of regulated banks and into the hands of private credit funds and other nonbank lenders. Speaking at the Hoover Institution on May 8, Bowman illustrated the trend: banks held 48% of the corporate lending market in 2015, but by 2025 that share fell to 29%.
Bowman pointed to Basel III capital requirements as the primary cause. These rules made direct corporate loans more expensive for banks by forcing them to hold more capital, reducing profitability. Current rules even give banks better capital treatment for lending to private credit funds than for lending directly to corporations.
The shift reduces regulatory oversight. When lending moved to nonbank lenders, the Fed and other agencies lost visibility and ability to intervene. Bowman called this an unintended consequence of well-intentioned reform, pushing risk-taking into less supervised parts of the financial system.
Her proposal: recalibrate Basel III capital requirements to better reflect actual risk. Adjust risk weights so that direct loans to creditworthy corporations and loans to private funds that lend to those corporations incur similar capital costs.