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Finance

Basel's Capital Squeeze Didn't Shrink Wall Street's Lending Book — It Turned It Into a Toll Booth

As tighter capital rules push leveraged loans off bank balance sheets and into private credit funds, JPMorgan and Goldman Sachs are cashing in as the landlords of that shadow-lending system, not the tenants.

Image: Money Racket
By at Money Racket · Mar 29, 2026

On March 19, 2026, the Fed, OCC, and FDIC jointly reissued their Basel III Endgame capital proposal — the long-running effort to raise how much loss-absorbing capital the biggest U.S. banks must hold against risk-weighted assets, including leveraged corporate loans. The new draft is friendlier to banks than the 2023 version, but the underlying incentive from a decade of tightening capital rules hasn't reversed: holding a leveraged loan on balance sheet still consumes expensive equity capital, while financing the fund that holds that same loan does not. That arbitrage is why roughly $1.7 trillion in private credit now exists largely outside the banking system — and why the biggest banks stopped fighting it and started billing it.

Who cashes in:

Basel didn't shrink the lending machine. It just moved the risk off the bank's balance sheet and put the fee back on it.
  • JPMorgan (JPM) runs the largest prime brokerage and fund-financing franchise on Wall Street, extending subscription lines (loans against a private fund's uncalled investor commitments) and NAV facilities (loans against a fund's existing portfolio) to the same direct-lending vehicles that now originate the leveraged loans banks used to hold themselves. JPM collects origination and carry fees on that financing without carrying the underlying corporate credit risk on its own book at the same risk weight — plus its asset management and custody arms increasingly administer the funds directly.
  • Goldman Sachs (GS) has built one of the industry's largest private credit platforms through its asset management division while simultaneously running a Prime Services unit that finances competing private credit and hedge funds — collecting fees on both sides of the same trade: as manager and as banker to the ecosystem.
  • Morgan Stanley (MS) leverages its prime brokerage and wealth-management distribution (a captive advisor network with trillions in client assets) to feed capital into private-credit vehicles it helps finance and place, another fee layer with minimal balance-sheet risk retention.
  • Charles Schwab (SCHW), through its custody and advisor-services business, benefits indirectly as private credit and alternative products get packaged and distributed to the RIA channel it serves — asset-gathering fee income with no lending risk at all.

Who is exposed:

  • Bank of America (BAC) and Citi (C) run large traditional corporate and middle-market lending books that compete directly with private credit for the same borrowers on price and covenants; every loan that migrates to a BDC or direct lender is fee and spread income these banks don't collect on either side of the trade.

The play: This isn't a bet that private credit blows up — it's a bet on who holds the toll booth regardless. Watch the June 18, 2026 comment deadline on the re-proposed capital rules and any final risk-weight numbers for corporate and investment-grade exposures; a lower risk weight could pull some lending back on balance sheet, but the fee-based financing infrastructure banks built around private credit isn't going away either way.

Source: original report ↗

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