What the Basel Regime Taught Us — And How It Shaped the Way Monard Invests

Prologue: A Moment for Reflection

In the first quarter of 2026, the private credit industry experienced a wave of redemption requests that it had not previously faced at scale. Several major private credit funds moved to gate investor withdrawals, capping redemptions at 5% per quarter after requests surged well beyond 11% of fund assets. Industry-wide, withdrawal requests exceeded $10 billion in a single quarter, with estimates of potential outflows reaching $45 to $70 billion if the trend persisted. Commentary from senior figures in global finance drew comparisons to earlier periods of credit market stress.

This is not an article that seeks to diminish or criticise the private credit industry — an industry that has provided vital capital to businesses, supported economic growth, and delivered meaningful returns to a broad range of investors. Rather, this is an opportunity to reflect on what the history of bank capital regulation teaches us about credit risk, and to explain how that history shaped the principles on which Monard Infrastructure was built.

Part One: The Basel Regime — A History Written in Crisis

The Birth of Basel I (1988)

The modern story of bank capital regulation begins in 1974, when the collapse of West German bank Herstatt prompted the Group of Ten central bank governors to establish the Basel Committee on Banking Supervision. That body's first binding output came in 1988 with Basel I, which required banks to hold capital equal to at least 8% of their risk-weighted assets. The key innovation was risk-weighting: not all loans carried equal risk, and therefore not all loans demanded equal capital. A sovereign loan carried a 0% risk weight; a standard corporate loan carried 100%. The framework was blunt by modern standards but was a genuine first attempt to align capital cushions with underlying credit risk.

Basel II and the Rise of Internal Models (2004)

Basel II, published in 2004, allowed large banks to use their own internal risk models to calculate risk-weighted assets and therefore their capital requirements. The intent was to create a more precise, risk-sensitive framework. The U.S. rules implementing Basel II were finalised in July 2007 — and the financial crisis that followed shortly after demonstrated the limits of even sophisticated modelling when the underlying risk assumptions are tested by genuine economic stress.

The Global Financial Crisis and the Basel III Response (2010–2014)

The 2008 crisis prompted a comprehensive international rethink of how credit risk should be managed. Banks had accumulated exposures to high-risk assets — subprime mortgage-backed securities, leveraged buyout loans, commercial real estate construction — with capital buffers that proved insufficient to absorb the resulting losses. The Basel III framework responded by materially raising both the quantity and quality of capital that banks were required to hold.

It introduced a "Common Equity Tier 1" (CET1) capital category with a minimum ratio of 4.5% of risk-weighted assets. Including the capital conservation buffer, well-capitalised large banks were required to hold at least 7% CET1 capital. Basel III also materially increased the risk weights applied to leveraged lending and commercial real estate construction loans — BCBS data showed that for every 1% increase in capital requirements, the price of credit rises approximately 13 basis points across international banks.

Part Two: The Growth of Private Credit

As Basel III capital requirements rose, banks progressively reduced their presence in higher-risk lending markets. By 2024, private debt funds accounted for 77% of leveraged buyout debt financing globally. In the middle market, direct lenders were financing approximately 90% of buyout transactions. Private credit AUM grew at a compound annual rate of 18% since 2000, reaching approximately $1.7 trillion by year-end 2023. BlackRock projected the market could reach $4.5 trillion by 2030.

That growth was achieved by talented managers building sophisticated platforms with genuine expertise in credit underwriting and borrower relationships. What the current moment invites is not a reassessment of that conclusion, but a broader conversation about credit risk, liquidity, and the enduring lessons that the history of lending teaches — regardless of who the lender is.

Part Three: What Credit History Teaches

The important point here is not that these loss rates are catastrophic. The issue is the asymmetric mathematics of credit investing. Unlike an equity investment, a loss in credit is permanent. When a loan defaults and recovery is partial, that capital is gone. A portfolio earning a spread of 500 to 600 basis points over the risk-free rate may spend years building that return, only to see it evaporated when a segment of the borrower base deteriorates simultaneously. In credit investing, the upside is capped at the coupon; the downside is the principal.

Part Four: The Lessons Monard Took from Basel

When Monard Infrastructure was established, we asked a simple question: if we were building a credit investment vehicle from first principles — informed by everything that banking regulation had learned over five decades — what would it look like? The answer shaped everything about our structure.

So, What's Around the Corner?

Monard believes that segments of the private credit market — specifically leveraged finance and property-related lending — are likely to continue experiencing pressure on credit quality in the near term. Persistent geopolitical instability, including ongoing conflict in the Middle East, continues to exert upward pressure on energy prices and global inflation. Should interest rates remain elevated, funds operating in cyclically sensitive lending markets will face continued headwinds.

As private markets attract an increasingly broad base of individual investors, Monard's sincere hope is that near-term pressures within private credit do not translate into lasting reputational damage to private capital as a whole. Many asset managers operating in this industry have built exceptional products and track records that deserve enduring confidence. Private capital is a fundamental strength of our capital markets and is an industry that must lead by adhering to the lessons of history.