Basel IV and the Rise of Private Credit

CRR III: Capital Requirements Regulation III; CRD VI: Capital Requirements Directive VI; FRTB: The Fundamental Review of the Trading Book
Source: European Commission, Prudential Regulation Authority, US Federal Reserve

What is changing and why it matters

The Basel IV framework introduces several reforms designed to improve consistency, transparency and resilience in bank capital calculations.

Key changes

While these measures aim to strengthen the banking system, their economic implications are significant. In practice, they increase the cost of holding riskier or less standardized loans on banks’ balance sheets. The upshot is lending to segments such as unrated corporates, leveraged borrowers and certain real estate sectors will become materially less capital-efficient.
 

The rise of private credit, from alternative to mainstream
 

Private credit’s rise predates Basel IV. The asset class has benefited from investors’ search for yield, demand for flexible financing solutions and the retrenchment of banks from certain lending segments following the global financial crisis.

Basel IV is reinforcing these trends. By increasing the capital intensity of selected exposures, the framework creates additional incentives for banks to optimize balance sheets and partner with third-party capital providers. As a result, private credit is positioned not only to capture loan demand that banks may choose not to retain, but also to participate directly in bank-originated lending opportunities.
 

From regulation to opportunity: How private credit is benefiting from banks’ strategic shift
 

As banks change their lending and capital management strategies to adapt to the new norms, the universe of assets and financing opportunities available to asset managers is expanding.

Opportunity themes

(*) ‘Direct’ investors might not reflect the ultimate risk owner.
Other investors here include: 0% risk-weighted MDBs and International Organisations, Credit Risk Insurers, Insurance Companies, Central Governments or Central Banks, and Other
Source: IACPM Global SRT Bank Survey 2016-2025 (iacpm.org)

While corporate and SME lending portfolios dominate issuance volumes, the market has broadened to include specialized lending, commercial real estate (CRE), trade finance, infrastructure and renewable energy assets, creating a wider opportunity set for investors seeking targeted credit exposures.

Europe remains the most active SRT market, accounting for approximately €241 billion of underlying portfolio issuance in 2025. This reflects both regulatory differences and greater capital optimization pressures, whereas North American banks face less urgency following the Basel III Endgame re-proposal.

The major recurring participants in the European SRT market include Santander, BNP Paribas, UniCredit, Deutsche Bank, Barclays, ING, Crédit Agricole and several Nordic banks. Most transactions are negotiated privately, resulting in limited public disclosure.

Publicly disclosed SRT deals in 2025

Source: Company News and Bloomberg

The outlook for the SRT market is highly positive from an investor perspective. The continued growth of private credit is expanding the pool of capital capable of supporting future issuance. At the same time, regulatory developments in the EU, UK and other jurisdictions appear increasingly supportive of risk-sharing structures, which could further broaden market participation and transaction volumes.

• O2D models: Asset managers are also partnering with banks through O2D models, in which banks originate and structure loans while institutional investors provide the funding and hold part of or all the credit exposure

For asset managers, these arrangements offer access to proprietary, bank-originated credit opportunities that may otherwise be difficult to source directly, while benefiting from the underwriting expertise, origination networks and longstanding borrower relationships of banks. The model enables investors to deploy capital at scale across diversified portfolios without the need to build extensive origination or servicing infrastructure, while gaining exposure to attractive risk-adjusted returns.

For many market participants, O2D represents the clearest example of how the future lending ecosystem may evolve.

Estimates suggest that more than a dozen major banks established or expanded private credit partnerships in 2025 and 2026, significantly higher than in previous years. High-profile partnerships such as Citi-HPS and SMBC-Bain highlight the growing move toward programmatic, long-term collaboration between banks and private capital providers rather than one-off transactions.

Known O2D deals

Source: Company News and Bloomberg

• Other forms of collaboration: Asset managers also access bank-originated credit assets through mechanisms such as true-sale transactions and forward-flow arrangements, which provide them direct ownership of loan portfolios 

True-sale transactions offer immediate portfolio scale and full economic exposure to the underlying assets. While historically associated with distressed asset sales, the mechanism has increasingly expanded to include performing loans as banks seek to optimize balance sheets and recycle capital more efficiently. For example, in July 2025, SMBC sold a portfolio of performing loans of more than $1.5 billion in the Asia-Pacific region to Apollo Global Management. Such transactions highlight the growing range of opportunities available to private credit investors seeking access to proprietary bank-originated assets.

Strategic arrangements/capital relief strategies and their key features

Source: Crisil Integral IQ

These partnerships mark a fundamental evolution: Banks are transitioning from lenders to originators and arrangers, while private credit funds become the ultimate holders of risk. As a result, collaboration between banks and private credit funds is creating a more interconnected and scalable credit ecosystem.