Bank of America Corp. is putting $25 billion of its own capital behind private credit deals, according to an internal memo reported by Bloomberg and Reuters. The move is a strategic bet that the bank can compete more directly with non-bank lenders that have dominated private credit in recent years. The size of the allocation also highlights how aggressively large banks are looking to expand in alternative lending.
A $25 Billion Balance-Sheet Bet
The commitment stands out because Bank of America is deploying money directly from its own balance sheet rather than simply arranging deals for outside investors. According to Bloomberg reporting on the internal memo, the bank plans to use its proprietary capital for private-credit transactions instead of relying on third-party funds. That distinction matters: when a bank puts its own cash at risk, it takes on the credit exposure directly, tying its earnings and loss reserves to the performance of the loans it originates and holds.
Using proprietary capital gives the bank pricing flexibility that fund-based lenders sometimes lack. A bank with a large deposit base can fund loans at a lower cost than a private credit fund that must raise capital from institutional investors and pay management and performance fees. That cost advantage could allow Bank of America to undercut competitors on rate while still earning attractive risk-adjusted returns. At the same time, the approach concentrates risk on the bank’s own books, a tradeoff that regulators and shareholders will watch closely as the portfolio scales up and as credit conditions evolve.
Why Traditional Banks Are Chasing Private Credit
For years, private credit grew largely because banks retreated. Post-2008 capital rules made it more expensive for traditional lenders to hold leveraged loans and other riskier corporate debt, opening a gap that asset managers and private equity firms filled with direct lending funds. The result was a migration of mid-market corporate borrowing away from syndicated loan desks and toward private negotiations between companies and non-bank capital providers. Banks watched fee revenue and relationship control shift to competitors who faced lighter regulatory requirements and could move faster in bespoke situations.
Bank of America’s decision to reverse that trend with a $25 billion allocation reflects a calculation that the economics have shifted again. Higher interest rates have made lending more profitable on a spread basis, and banks with strong deposit franchises can capture that spread more efficiently than levered funds. At the same time, institutional investors who poured money into private credit vehicles are starting to ask harder questions about liquidity, valuation transparency, and the true default experience of portfolios assembled during a long period of easy money. A bank-backed lender can offer borrowers certainty of execution and a single relationship, while providing its own shareholders with higher-yielding assets that diversify revenue beyond traditional investment banking, trading, and fee-based services.
Competitive Pressure on Non-Bank Lenders
The entry of a bank the size of Bank of America, with $25 billion earmarked for direct deals, changes the competitive math for existing private credit managers. Non-bank lenders have built their franchises on speed, flexibility, and a willingness to structure bespoke financing that syndicated markets could not easily accommodate. A well-capitalized bank bringing similar deal structures but cheaper funding costs could compress the premium that private credit funds have charged borrowers, particularly in the upper mid-market where deal sizes are large enough to attract bank attention and underwriting resources.
That pressure cuts both ways. Private credit funds may respond by moving further down-market or into more complex situations where bank appetite is limited, such as distressed credits, litigation finance, or specialty asset-backed lending. The result could be a segmentation of the market: banks like Bank of America handling larger, more standardized direct loans that fit within regulatory guardrails, while independent managers focus on niches where capital treatment makes bank participation uneconomic. For corporate borrowers, the increased competition should translate into better pricing, more flexible covenants, and a broader menu of structures, at least in the near term while banks are aggressively building market share.
Regulatory and Risk Considerations
Deploying $25 billion into private credit is not without friction for a bank subject to Federal Reserve stress tests and Basel capital standards. Private credit assets typically carry higher risk weights than investment-grade bonds or government securities, meaning the bank must hold more capital against them. That capital charge reduces the return on equity unless the loans generate enough income to offset the drag. Bank of America’s willingness to accept that tradeoff suggests management sees private credit yields as sufficiently attractive to clear the hurdle, but the math will be tested if credit conditions deteriorate and defaults rise.
There is also the question of transparency. Private credit loans are not traded on public markets, so their valuations rely on internal models and periodic assessments rather than real-time price discovery. Regulators have grown increasingly attentive to how banks mark illiquid assets, and a $25 billion portfolio of private loans will draw scrutiny during supervisory reviews. Reuters has noted that the initiative stems from an internal memo outlining the bank’s push into this area, underscoring that supervisors will want clear visibility into underwriting standards, concentration limits, and how the bank calibrates its reserves for potential losses across cycles.
What This Means for Borrowers and Investors
For mid-market and larger companies that rely on private credit for acquisition financing, growth capital, or refinancing, Bank of America’s entry adds a well-resourced counterparty to the mix. Borrowers who previously had to choose between syndicated bank loans with rigid terms and private credit with higher rates now have a hybrid option: a bank willing to hold the loan on its own books and potentially offer more competitive pricing while still tailoring covenants. In competitive auction processes, the presence of a large bank balance sheet alongside private funds could shift negotiating leverage toward issuers as they pit term sheets against one another.
For Bank of America’s own shareholders, the $25 billion commitment represents a meaningful shift in how the bank deploys capital. A sizable book of private loans can lift net interest income and fee generation, but it also introduces exposure to less liquid assets that may be harder to shed in a downturn. Investors will scrutinize disclosures on portfolio composition, sector exposures, and realized loss experience as the program matures. As another Reuters dispatch emphasizes, the move is part of a broader push into what is seen as a lucrative market, and the ultimate verdict will hinge on whether the bank can balance growth ambitions with the discipline demanded by its regulators and long-term investors.
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*This article was researched with the help of AI, with human editors creating the final content.
Grant Mercer covers market dynamics, business trends, and the economic forces driving growth across industries. His analysis connects macro movements with real-world implications for investors, entrepreneurs, and professionals. Through his work at The Daily Overview, Grant helps readers understand how markets function and where opportunities may emerge.
