Commercial and industrial lending by U.S. banks surged 12.7% in the first quarter, the fastest pace of growth since 2022. I think there are fundamental and regulatory reasons bank lending is growing, which is what I mean by “opportunity” in today’s market. I’ll explain more below.
But the “risk” piece of the equation might be the more insightful part of the story, given that bank lending is growing as private credit is pulling back.1
Indeed, as bank lending expanded in Q1, private credit lending volumes fell 14% year-over-year. Fundraising for private credit vehicles has also fallen sharply, with new capital raised by non-listed business development companies (BDCs) down roughly 60% from a year ago. Investors also redeemed more than $15 billion from those funds during the quarter, contributing to a meaningful slowdown in new loan activity.
To give readers some background, private credit has become one of the fastest-growing corners of the financial system over the past decade. Private credit funds have filled a gap created by tighter post-financial crisis regulation, which made banks less willing to extend riskier corporate loans. In a relatively short period of time, private credit grew into a roughly $1.8 trillion market and has become an important source of financing for middle-market companies, leveraged buyouts, and private equity-backed transactions.
Yields from private credit vehicles have been attractive to investors in recent years, but these investments typically involve higher fees, less transparency, and more limited liquidity than traditional public securities—as I’ve written before. Shares may only be redeemable at certain intervals, withdrawals can be capped when demand is high, and reported values may not adjust as quickly as public market prices. Many investors who were not fully aware of these terms have been caught off guard recently.
There has been some chatter in financial media that cracks in private credit markets could potentially lead to contagion of some kind, or even a recession. But that’s not an argument I would make right now, especially given the bank lending data I cited above. Commercial banks dwarf the private credit market in size, with U.S. banks currently holding roughly $13.7 trillion in loans outstanding. That’s more than seven times the size of the private credit industry. Even modest increases in bank lending can therefore have a much larger impact on overall credit availability than declines in private lending volumes.
Which brings me to the “opportunity” in today’s market. Banks are benefiting from modest regulatory easing that is allowing them to compete more aggressively for leveraged loans and other corporate financing opportunities. Earlier this year, the Office of the Comptroller of the Currency indicated it was open to relaxing some post-crisis leveraged lending constraints in an effort to help banks regain market share from private lenders.
At the same time, banks may simply be in a stronger position to lend than they were in recent years. A steeper yield curve has improved lending economics, while deposit bases provide banks with cheaper funding than many private credit firms currently enjoy. In March, syndicated bank loans were being issued at spreads roughly 100 basis points lower than comparable private credit loans.
I would argue that this trend, if it holds, is just better for the economy and markets generally. Traditional bank lending generally operates within a more transparent and heavily regulated framework than large portions of the private credit universe. While some worry that easier lending standards could eventually encourage excessive risktaking, the broader takeaway today is that credit continues flowing through the financial system rather than contracting.
Ultimately, it’s credit that helps fund business expansion, acquisitions, capital investment, and hiring. If one corner of the lending market slows while another accelerates, the net economic impact may be far less negative than some of the recent private credit headlines imply. In that sense, what we may be witnessing is less a deterioration in credit conditions and more a shifting balance between private lenders and traditional banks.
Bottom Line for Investors
Companies borrow to expand operations, finance acquisitions, invest in equipment, and hire workers. While we’re seeing a decline in private credit coincide with a pickup in bank lending, that may ultimately be beside the point. Credit availability—not the specific source of the loan—is often the more important driver of future business investment and economic growth.
And right now, the broader lending backdrop still appears constructive. Bank lending is accelerating, corporate default rates remain relatively contained, and businesses continue to access capital despite growing caution in parts of the private credit market.
1 Bloomberg. May 18, 2026. https://finance.yahoo.com/economy/policy/articles/global-bond-yields-multiyear-highs-100607393.html
2 Fred Economic Data. May 20, 2026. https://fred.stlouisfed.org/series/DGS10
3 Goldman Sachs. May 20, 2026. https://www.goldmansachs.com/insights/articles/us-data-center-power-demand-projected-to-doubleby-2027
4 Wall Street Journal. May 20, 2026. https://www.wsj.com/economy/central-banking/fed-minutes-reveal-support-for-rate-hikes-ifinflation-proves-persistent-97e63b1c?mod=economy_lead_story
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