Private credit redemptions test the model as banks look for an opening

Wall Street banks may be seeing a window to compete more aggressively in leveraged finance, as pressure builds in parts of the private credit market and policy expectations shift.

A report by CNBC framed the moment as a potential opening for banks to reclaim share after a long stretch in which private credit funds expanded by offering quicker execution and more flexible terms than regulated lenders.

Mark Zandi, chief economist at Moody’s, told CNBC that the backdrop is turning more favorable for banks: “This is an opportune time for banks to regain market share from private credit funds.”

On top of declining interest rates and loosening regulations on banks, he said "Private credit lenders are also struggling with the fallout from their previously aggressive lending.”

Liquidity terms back in focus

A data analysis by the Wall Street Journal pointed to fund flows as a flashpoint in the debate over private credit’s health, particularly among vehicles that cater to individual investors.

Citing flow data tallied by investment-banking firm Robert A. Stanger for business-development companies, the Journal reported that investors withdrew more than $11 billion over the past two quarters. Funds also raised $12.4 billion in new capital in the five months through February, though inflows have been slowing and March data has yet to become available.

Redemption mechanics are influencing investor behavior. Many funds have built-in quarterly withdrawal limits – often 5% of the fund, according the Journal – and some limited first-quarter withdrawals when requests exceeded those caps. In those cases, managers can prorate withdrawals to stay within the limit, or choose to pay out more.

Some funds have opted to stick with their limits, while others paid out more – in some cases up to 15% – reflecting a split over whether tighter gating protects more loyal investors or risks unsettling clients further.

Read more: BlackRock curbs redemptions at HPS private credit fund as investors weigh risks

For advisors, those details can matter as much as headline performance: a product’s stated liquidity terms may feel theoretical until redemption requests surge, and then portfolio planning shifts from return expectations to timing and cash-flow expectations.

Banks’ share rebounded, but the competitive gap remains

CNBC also cited PitchBook data showing that banks’ share of buyout financings above $1 billion fell to 39% in 2023, down from about 80% in the prior five years, before recovering to just over 50% in 2025. Traditional lenders have shown interest in “jumbo” transactions when conditions allow, through private credit firms are still able to assemble large lending groups for multibillion-dollar deals.

In comments to CNBC, Shannon Saccocia, chief investment officer at Neuberger Berman, tied banks’ potential comeback to how capital rules are applied.

“Our anticipation of deregulation from the Trump administration includes a likely weakening of the Basel III Endgame implementation, with the US Treasury explicitly aims to redirect business lending back into the banking sector,” she said.

Even if banks become more competitive on price, CNBC noted that private credit retains structural advantages that are hard for banks to replicate consistently, including speed and certainty of execution, along with deal terms that can be tailored more flexibly.

Read more: Morgan Stanley, JPMorgan turn cautious on private credit as redemptions surge

UBS: yields still appeal, but selectivity matters

Separately, a note from UBS highlighted how concerns about artificial intelligence disrupting some established tech businesses have renewed attention on credit risk in parts of private credit, particularly where funds lend to those companies.

UBS also flagged the potential for higher energy prices to slow global growth and for geopolitical developments, including in the Middle East, to affect sentiment around the asset class.

"Our view is that for long-term investors, the asset class still offers relatively attractive yields and diversification benefits," the note said, emphasizing the importance of selectivity as expected rate cuts, bifurcation in credit quality, and loan vintage become increasingly crucial.

"And of course, as with other private asset strategies, investors must be prepared to tolerate illiquidity," UBS said. "We recommend investors consider biasing exposure toward funds focusing on senior, sponsor-backed, upper-middle-market loans in non-cyclical sectors, which are proving more durable."