Where does the Basel III endgame actually stand?
Proposed, reversed in direction, and unfinished. On 19 March 2026 the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency proposed cutting the corporate exposure risk weight from 100 percent to 95 percent and the risk weight on unassigned assets from 100 percent to 90 percent, with requirements described as modestly reducing for large banks and moderately reducing for smaller banks (joint agency release and fact sheet, 19 March 2026).
The comment period closed on 18 June 2026 and there is no final rule and no compliance date. That matters for how the proposal should be treated: the relief is directional rather than bankable, and a lending decision made today is not being made under it.
It also cuts against the version of the story most borrowers have heard. The original endgame framing was that capital requirements would rise and lending would contract. The current proposal moves in the opposite direction, and the aggregate capital effect that circulates in coverage is a press estimate rather than a figure the agencies published. No agency has quantified it.
So a borrower declined in 2026 was not declined by Basel. The rule that would have justified that explanation is not in force, and the amendment now on the table would loosen rather than tighten.
What are banks actually doing right now?
Competing. The net percentage of domestic banks tightening commercial and industrial standards was 0.0 percent for large and middle-market firms and 1.8 percent for small firms in the second quarter of 2026, down from 8.1 percent and 6.6 percent in the April survey, with the Federal Reserve describing standards as basically unchanged for firms of all sizes and terms as eased or basically unchanged (Federal Reserve, July 2026 Senior Loan Officer Opinion Survey, published 3 August 2026).
Pricing moved further than standards did. A net 26.8 percent of banks narrowed spreads over their cost of funds to large and middle-market firms and a net 14.5 percent to small firms, the widest net narrowing in the recent series, and commercial and industrial standards are now easier than their historical midpoint since 2005, the only loan category of which that is true (Federal Reserve, July 2026 SLOOS).
The balance sheet data agrees. Bank commercial and industrial loans stood at 2,894.2 billion dollars in June 2026, up 8.0 percent year on year after being flat through 2025 (Federal Reserve H.8 series), and across eleven super-regional banks commercial and industrial lending was the largest source of commercial loan growth in the second quarter, with two banks explicitly citing share won back from private credit (Trepp second quarter 2026 bank earnings review via GlobeSt, 3 August 2026).
That is the opposite of a credit crunch, and it should change how a borrower approaches the market. A relationship lender that declined a leveraged acquisition financing may compete hard for the same company's working capital facility.
“Borrowers hear that banks have retreated and stop asking them. The survey data says the opposite about ordinary corporate credit, and the retreat that is real is narrower than the story: it is about leveraged transactions and hold sizes, not about whether a bank wants a profitable middle-market company as a client.”
So what did actually change?
Bank participation in leveraged lending specifically, over several years rather than in the last quarter. Direct lenders now finance roughly 90 percent of buyout transactions below five hundred million dollars of enterprise value (ABF Journal, 19 March 2026). That is a structural position, not a cyclical one.
The mechanism is hold size rather than appetite. Individual bank hold sizes in middle-market leveraged lending have contracted from 75 to 100 million dollars to 30 to 50 million, and several large regional banks exited the segment entirely from 2024 onward (ABF Journal, 19 March 2026). A smaller hold size means more banks are needed for the same financing, which makes bank clubs slower and, past a certain deal size, impractical.
The result is a sorting rather than a shortage. Ordinary corporate credit, revolvers, equipment finance and owner-occupied real estate remain squarely bank business and are being competed for. Acquisition finance at four to six times leverage, with an aggressive earnings definition and a sponsor on the other side, is largely not.
Borrowers experience that sorting as an inconsistency: the same institution that has banked the company for fifteen years declines the acquisition facility and then calls about deposits three weeks later. It is not inconsistent. It is two different products with two different capital and policy treatments.
What does the alternative cost?
Between roughly 150 and 400 basis points more, depending on size and seniority. At a one-month term SOFR of 3.65 percent in early August 2026, the ladder runs from about 6.7 percent for a syndicated institutional term loan refinancing, through 6.4 to 7.9 percent for bank core middle-market credit, to 7.9 to 9.4 percent for private credit unitranche above twenty-five million dollars of EBITDA, and 9.2 to 11.2 percent for lower middle market unitranche below ten million dollars of EBITDA (SPP Capital Partners, Market At A Glance, July 2026; PitchBook LCD, 17 July 2026).
The gap between the core middle market and the lower middle market at the same seniority is roughly 125 to 175 basis points, a function of size, packaging and competition rather than of credit quality. On a twenty million dollar facility, 150 basis points is three hundred thousand dollars a year.
Leverage capacity differs as well, and in the direction that surprises people. Total debt for issuers below ten million dollars of EBITDA clears at 2.50 to 3.25 times, tightened from 2.50 to 4.00 times a year earlier, while issuers above twenty-five million dollars clear at 5.00 to 6.50 times (SPP Capital Partners, July 2026). The smaller borrower pays more and gets less.
There is one genuinely constructive signal in that. Lower middle market lenders describe bank competition returning, with banks competing more aggressively for quality transactions than at any point in the recent cycle (SPP Capital Partners, July 2026). A borrower who assumes the bank market is closed will not test that.
| Lender type | All-in cost | Who it is available to |
|---|---|---|
| Syndicated institutional term loan | About 6.7 percent for refinancing issuance in 2026, down from 7.4 percent in 2025 | Rated issuers of institutional scale |
| Bank core middle market cash flow | 6.4 to 7.9 percent depending on band | Borrowers above roughly ten million dollars of EBITDA with conventional structures |
| Private credit unitranche, above 25 million dollars of EBITDA | 7.9 to 9.4 percent | Sponsored and larger founder-owned borrowers |
| Lower middle market unitranche, below 10 million dollars of EBITDA | 9.2 to 11.2 percent | Smaller borrowers, including first-time institutional borrowers |
| Lower middle market junior capital | 13 to 16 percent all-in, cash and payment-in-kind combined | Borrowers stretching beyond senior capacity |
What should a borrower do about it?
Get more than two quotes. The most useful finding in the recent academic literature on this is that the dispersion in what similar firms pay does not appear to be explained by risk, that over a third of firms behave as if they do not comparison shop, and that half of all firms appear to obtain only two quotes before choosing a lender (Amiti, Kashyap, Kovner and Weinstein, Why Do Firms Pay Different Interest Rates on Their Bank Loans?, NBER Working Paper 34870, February 2026).
Read together with the pricing ladder above, that is a large and avoidable cost. If similar borrowers pay materially different rates for reasons unrelated to their risk, then the process of asking is worth more than the negotiation that follows it. Two quotes is not a market test.
Second, match the product to the lender rather than the relationship to the lender. Take the working capital facility and the equipment finance to the banks, which are competing for exactly that business, and take the acquisition financing to the lenders who hold it as a matter of course. A structure split across both is often cheaper than either alone.
Third, do not wait for the rule. The endgame proposal has no final text and no compliance date, and the base-rate path is not helping: three-month SOFR forwards price 4.04 percent at the end of 2027 against 3.76 percent in early August 2026 (Blue Gamma, 4 August 2026). A financing that works today at today's ladder is a better plan than one that depends on regulatory relief arriving before the maturity does.
As of August 2026
Sources: Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency, joint release and fact sheet, 19 March 2026, for the proposed reduction of the corporate exposure risk weight from 100 percent to 95 percent and unassigned assets from 100 percent to 90 percent, for the description of requirement changes by bank size, and for the 18 June 2026 close of the comment period, with no final rule or compliance date as at August 2026; Federal Reserve, July 2026 Senior Loan Officer Opinion Survey, published 3 August 2026, for net tightening percentages on commercial and industrial standards, for the net narrowing of spreads over cost of funds, for standards being easier than the historical midpoint since 2005, and for loan demand; Federal Reserve H.8 series, for bank commercial and industrial loans of 2,894.2 billion dollars in June 2026, up 8.0 percent year on year; Trepp second quarter 2026 bank earnings review via GlobeSt, 3 August 2026, for commercial and industrial lending as the largest source of commercial loan growth across eleven super-regional banks and for share won back from private credit; ABF Journal, 19 March 2026, for direct lenders financing roughly 90 percent of buyouts below five hundred million dollars of enterprise value, for bank hold sizes contracting from 75 to 100 million dollars to 30 to 50 million, and for regional bank exits from the segment since 2024; SPP Capital Partners, Market At A Glance, July 2026, for pricing and leverage by EBITDA band, for junior capital yields, and for bank competition returning; PitchBook LCD, 17 July 2026, for the average yield to maturity on syndicated institutional term loan refinancing of 6.7 percent in 2026 against 7.4 percent in 2025; Amiti, Kashyap, Kovner and Weinstein, Why Do Firms Pay Different Interest Rates on Their Bank Loans?, NBER Working Paper 34870, February 2026, for interest rate dispersion not appearing to be explained by risk and for the share of firms obtaining only two quotes; Blue Gamma, 4 August 2026, for three-month SOFR forward pricing. The aggregate capital-relief percentage circulating in coverage of the March 2026 proposal is a press estimate rather than an agency figure and is not used here. Financing process guidance is drawn from our own mandate practice.