Bowman: Regulation shifts corporate lending to nonbanks
Federal Reserve Vice Chair for Supervision Michelle W. Bowman addressed how regulatory requirements are driving corporate lending from banks to nonbanks. Speaking at the Hoover Institution, Bowman outlined the implications and the Fed's three-part policy response.
The great lending migration
Since 2015, the bank share of corporate lending has decreased from 48 percent to 29 percent in 2025, largely driven by the private credit market, which now accounts for about $1.4 trillion in the United States.
This shift stems from post-2008 financial crisis reforms that, while strengthening bank capital and liquidity, created unintended consequences.
Regulatory requirements became disproportionately burdensome relative to risk, prompting banks to curtail corporate lending activities or raise credit costs.
This framework created a perverse incentive where banks receive more favorable capital treatment for lending to private credit funds than for directly lending to creditworthy corporations, encouraging financing intermediaries over end-borrowers.
Recalibrating capital rules
The Federal Reserve's response relies on three pillars, starting with proposed changes to the Basel III framework.
These aim to address punitive capital treatment on traditional bank lending by reducing the risk weight for investment-grade corporate loans from 100 percent to 65 percent.
This adjustment seeks to level the playing field, allowing banks to compete more effectively with non-depository financial institutions (NDFIs) in serving creditworthy businesses.
Bowman emphasized this recalibration maintains a strong banking sector while preventing regulatory requirements from pushing activities out of the regulated system.
Data deficit exposed
Crucially, the Fed aims to close a significant data gap by enhancing regulatory reporting on non-depository financial institutions.
Current broad industry codes obscure critical interconnectedness and concentration risks, hindering effective supervision and capital calibration.
This targeted data collection is a pragmatic step to ensure regulators possess the necessary insights to manage systemic risks, rather than reacting to them after the fact.