The Federal Reserve Board published an analysis showing that business development companies (BDCs) became more reliant on bank credit lines during the 2022 monetary tightening cycle while paying higher rates than comparable non-BDC borrowers. The findings indicate that banks continue to play a central role in private credit as upstream liquidity providers and that monetary policy can transmit through private credit via higher funding costs even when credit volumes remain resilient. During the tightening cycle, BDC loan commitments grew 1.1 percentage points more and credit-line utilization rose 14.2 percentage points more than for other borrowers with the same bank-assessed credit rating and similar characteristics. Banks charged BDCs an additional premium of about 0.9 percentage point during tightening, bringing the total premium to roughly 1.1 percentage points, despite BDC loans generally being senior, collateralized and associated with lower loss-given-default estimates. The analysis links this pricing partly to a concentrated, relationship-based funding market, where the top five banks provided about two-thirds of utilized BDC lending and BDCs rarely switched lenders.
Federal Reserve Board2026-08-07
Federal Reserve Board analysis finds banks charged BDCs a 1.1 percentage point premium during monetary tightening
Federal Reserve Board analysis found that BDCs increased their reliance on bank credit lines during the 2022 monetary tightening cycle and paid a total interest-rate premium of roughly 1.1 percentage points. The premium persisted despite strong creditor protections and may partly reflect banks’ bargaining power in a concentrated, relationship-based funding market.