(Credit: William - stock.adobe.com)

Speaking to the House of Lords financial services regulation committee, the bankers argued that lightly regulated private credit groups can operate more cheaply, fuelling 15% annual growth in that market.

Michael Roberts of HSBC highlighted a key regulatory disparity. He explained that a direct loan to a small or medium-sized enterprise (SME) attracts a 100% risk weighting for the bank. However, if HSBC funds a private credit group to finance the same SME through a securitisation vehicle, the loan attracts only a 20% risk weighting, Financial Times reports.

This structure makes indirect lending five times more capital-efficient, despite concerns from regulators and bankers about the lack of oversight in the private credit sector, which has drawn parallels to the run-up to the 2008 financial crisis.

Stephen Dainton of Barclays pointed to the “vast scale” of US private credit giants like Blackstone and Apollo, urging regulators to scrutinise the sector more granularly.

The banks’ lobbying effort has intensified as the Bank of England (BoE) reviews UK capital requirements (with results due next month) and as US regulators signal a major easing of rules for Wall Street.

The executives warned that UK authorities must not disadvantage UK banks if other nations diverge from the global Basel agreement on bank capital. Mr Roberts called for private credit groups to face disclosure requirements similar to those imposed on banks.