The New Credit Hierarchy: Who Gets Funded First
Executive Summary
The era of uniform credit availability is over. In 2026, the full implementation of Basel III Endgame standards has fundamentally altered the banking sector's incentives. We are witnessing a bifurcation in credit access: large, investment-grade corporates ("Tier 1") continue to access bank balance sheets at competitive rates, while small and medium enterprises (SMEs) and unrated borrowers ("Tier 3") are increasingly pushed toward private credit markets where costs are 300–500 basis points higher.
Our analysis indicates this is not a temporary liquidity crunch but a structural shift driven by Return on Risk-Weighted Assets (RoRWA). Banks are rationing credit based on capital efficiency rather than pure default risk. For CFOs and Treasurers, the implication is clear: access to bank capital is now a function of your "regulatory density" as much as your solvency.
Core Strategic Insight
Diagnostic Analysis: The Mechanics of Rationing
The contraction in credit availability reported in the October 2025 Senior Loan Officer Opinion Surveys (SLOOS) in both the US and Euro area is not a cyclical anomaly; it is the mathematical outcome of the new regulatory architecture.
Gov / Blue Chip / Inv. Grade
Secured SME / Mid-Market
Unsecured / High Risk / Brown Assets
1. The Money Supply vs. Money Availability Paradox
While headline M2 money supply figures may suggest adequate systemic liquidity, this liquidity is trapped in the upper echelons of the credit hierarchy. Data from late 2025 indicates a sharp tightening of standards for C&I loans to small firms.
2. Renewal Bias: The Zombie Preference
A critical, often overlooked mechanism in this cycle is "renewal bias." Banks are incentivized to roll over loans to existing, potentially weaker clients ("zombies") rather than originate new loans to healthier but unproven borrowers. Why? Because originating a new loan requires a fresh capital assessment under the new, stricter Basel IV/Endgame standardized approaches.
3. The Green Asset Ratio Skew
The integration of climate risk into prudential frameworks has introduced a new rationing variable. A "brown" borrower (e.g., heavy manufacturing, transport) now carries a dual cost: a higher RWA density due to transition risk and a "reputational capital" charge.
Transactional only. Kept for liquidity but pricing is tight.
Gets cheapest rates. Unlimited access. The bank's favorite client.
Offboarded. "Please find another lender."
Gets funding but pays high fees to subsidize capital usage.
Strategic Implications
For Borrowers: The "Capital Efficient" Pivot
Borrowers must stop viewing themselves merely as credit risks and start viewing themselves as consumers of bank capital. CFOs must structure debt to be "capital efficient"—shifting away from long-dated, unsecured term loans toward shorter-duration trade finance.
10-Step Roadmap: Climbing the Credit Ladder
Regional Lens
- USA: The "Endgame" is aggressive. Regional banks, facing their own liquidity constraints, are retreating to local, secured lending.
- UK: The PRA has maintained strict Basel adherence. "Brown" borrowers face double-impact from credit and climate screening.
- Australia/NZ: Bank oligopolies provide stability but higher pricing power. Residential mortgages limit business lending capacity.
• Federal Reserve Board (2025). "October 2025 Senior Loan Officer Opinion Survey."
• FDIC (2024). "White Paper on Basel III Endgame Proposal."
• Deloitte (2025). "2026 Banking and Capital Markets Outlook."