As private credit expands, partnerships between banks and funds are transforming how lending is originated, structured, and distributed. A senior capital executive explains how these models are reshaping balance sheets, risk transfer, and the competitive
The rapid growth of private credit markets is fundamentally reshaping how banks approach lending, capital allocation, and risk management.
Increasingly, financial institutions are forming partnerships with investment funds to originate and distribute credit, creating new models that blur the traditional boundaries between banks and nonbank lenders.
According to the Director of Wholesale Banking Capital at a major European financial institution, these partnerships are not simply a response to regulatory pressure but a structural evolution in how credit is delivered.
“What we are seeing is not a replacement of bank lending, but a reshaping of how credit is originated, structured, and ultimately held,” he told CeFPro’s recent Treasury and ALM conference event..
Historically, banks originated loans and retained them on their balance sheets, managing both the risk and the capital implications.
However, regulatory changes and capital constraints have encouraged institutions to rethink this model. By partnering with private credit funds, banks can originate assets while transferring part of the risk and capital burden to external investors.
“This model allows banks to continue supporting clients while optimizing capital usage,” the executive said. “At the same time, funds gain access to origination capabilities and deal flow that would otherwise be difficult to replicate.”
The result is a more distributed credit ecosystem, where risk is shared across multiple participants. While this can enhance efficiency, it also introduces new complexities around governance, transparency, and alignment of interests.
The speaker emphasizes that one of the key challenges lies in ensuring that risk is appropriately understood and managed across all parties involved.
“When you move from a single balance sheet model to a partnership model, the question becomes how risk is assessed, priced, and monitored across the structure,” he noted.
This requires robust frameworks for due diligence, ongoing monitoring, and clear contractual arrangements. Without these safeguards, there is a risk that incentives between banks and funds could diverge, potentially leading to misaligned risk taking.
Another important consideration is how these partnerships affect banks’ balance sheets and capital positions.
By transferring exposures to funds, institutions can reduce risk weighted assets and improve capital efficiency. However, the executive warned that this does not eliminate risk entirely.
“Risk does not disappear - it is redistributed,” he said. “And that redistribution needs to be understood not just at the transaction level, but across the broader system.”
