Computer Says No

Vertis Investment Team

27 Aug 2026 — 15 min read

Or: how bank capital rules shape access to credit

A bank loan today meets two tests. The first is a regulatory capital test; an underlying model weighs the risk of the exposure and the capital required against it. The second is a commercial test; an underlying model calculates risk-adjusted return and prices the exposure. Get both wrong in the same direction, for the same borrower, and you get no loan at all.

Borrowers that fail the models go unfinanced, even where the underlying risk should support the credit.

This is not an accident. The first test is the outcome of rules designed to stop the biggest banks failing together. The second is the bank’s own invention: a profitability discipline that prices the loan alongside the relationship, subsidising today’s spread with tomorrow’s expected fees.

Our ABF White Paper set the scene for this lending environment in Section 2, "Structural Drivers: Bank Retrenchment and Private Credit Expansion". "Bank retrenchment" is an overused term and not quite right: lending does not stop, it moves into other pockets. Regulators continue to evaluate the lending methods of banks and implement more uniform measures of risk and return. In response, banks watch capital consumption and originate less directly. Together, the two tests have opened a structural gap between borrowers that retain access to bank financing and those that are overlooked.

This issue expands on the evolution of the regulatory guidelines and how bank lending and private credit have responded. We look at how incentives steer origination decisions today.

A note on intent: We write the Credit Observer to sharpen our own thinking and to hold ourselves accountable to the standards we set. This is not a claim that bank models act in bad faith. Rather, this is a study of what their incentive structure optimises for. Banks are behaving rationally within this structure. We welcome feedback and the debate.

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