Fed Report: $500B+ Warehouse Capacity for Lenders

The Federal Reserve's November 2025 Financial Stability Report reveals a striking reallocation of bank balance sheets toward securitization infrastructure. Bank credit commitments to SPEs, CLOs, and ABS vehicles surged approximately 30% year-over-year through 2Q 2025, pushing total committed capacity above $500 billion—up from roughly $450 billion the prior year.¹ This growth rate significantly outpaces credit expansion to other nonbank financial categories tracked by the Fed.

Key developments:

• Demographic tailwind driving demand: Baby Boomers purchasing annuities at record pace ($432.4 billion in 2024 sales, up 12% YoY) are pushing insurers into higher-yielding structured products to match 5%+ liability rates²

• Insurance ABS exposure expanding: U.S. insurer holdings of ABS and structured securities grew nearly 12% in 2024 to $699 billion, with PE-owned insurers allocating up to 50% of portfolios to structured products versus 25-33% for the broader industry³

• Bank-private credit partnerships accelerating: Major banks including Wells Fargo/Centerbridge, Citi/Apollo, PNC/TCW, and Barclays/AGL have formalized capital deployment arrangements with private credit funds⁴

• Warehouse economics still governed by structure: Standard warehouse terms show advance rates of 75-90%, pricing indexed to SOFR plus 300-1000+ basis points depending on asset class and originator track record, with 1-3 year tenors⁵

• Consumer/marketplace ABS doubling: Issuance in consumer and marketplace lending-related securitization doubled over four years to roughly $20 billion in 2024, with point-of-sale and home improvement segments growing from $1.5 billion to over $7 billion⁶

The immediate implication: warehouse capacity for alternative lenders is expanding, but the economics depend heavily on negotiating advance rates, eligibility criteria, and trigger structures within an increasingly competitive landscape.

What Alternative Business Lenders Need to Know

Why are banks pouring capital into securitization vehicles instead of direct lending?

The answer sits in two converging forces: regulatory capital efficiency and institutional demand for yield.

Elen Callahan, head of research at the Structured Finance Association, frames it directly: banks are providing credit to allow nonbank financial institutions to operate at scale their equity alone could not support.¹ Rather than originating risky small business loans on-balance-sheet (which require higher capital charges), banks fund the warehouse facilities and term securitization structures that enable alternative lenders to do the originating. The bank earns a spread on senior secured credit with first-loss protection below them. The alternative lender gets leverage to scale.

This isn't a new dynamic, but the 30% growth rate signals an acceleration. Post-GFC regulations that increased bank capital requirements for direct lending have been pushing risk toward nonbank intermediaries for over a decade. The COVID-era experience actually reinforced this—banks that funded warehouse facilities through March 2020 saw relatively limited losses while earning stable returns, even as fears about servicer liquidity dominated headlines.¹² The top 15 warehouse lenders all increased committed lines throughout 2020.

What's driving the demand side of this equation?

Insurance companies are the force multiplier. Baby Boomers are transferring wealth into annuities at historic rates—$432.4 billion in 2024 sales, with fixed-index and structured annuities setting records for three consecutive years.² When an insurer sells an annuity promising 5%+ returns, it needs assets yielding at least that much to avoid duration mismatch.

Corporate bonds don't get there. Treasury securities definitely don't. But esoteric ABS backed by pools of receivables—merchant cash advance portfolios, equipment leases, consumer loans, franchise royalties—can offer spreads of 200-400+ basis points over comparable-rated corporate paper. PE-owned insurers are particularly aggressive, allocating up to 50% of investment portfolios to structured products.³

The mechanics flow downhill: insurers demand ABS → asset managers need more collateral pools → term securitization issuance increases → warehouse facilities need to accumulate larger volumes → banks commit more capital to SPEs.

How does this translate to warehouse facility availability for mid-market alternative lenders?

More capacity is available, but the competitive dynamics have shifted.

Standard warehouse structures still price at SOFR plus 300-1000+ basis points depending on asset class, borrower track record, and structural features.⁵ Advance rates typically run 75-90% initially, potentially stepping down over the facility tenor as collateral seasons. Tenors range from 1-3 years, with renewals subject to performance and market conditions.

For equipment finance, recent deals provide benchmarks. Wingspire Equipment Finance completed a $201 million inaugural ABS in September 2024 that was 3x oversubscribed, achieving F1+/AAA ratings on senior tranches.²⁰ VFI Corporate Finance closed a $209 million equipment ABS in 2025 with 9-11x oversubscription across four note classes.²¹ That demand reflects both investor appetite and the premium placed on experienced management teams with seasoned origination platforms.

The challenge for smaller alternative lenders: banks are increasingly allocating warehouse commitments through partnerships with established private credit funds. Wells Fargo-Centerbridge, Citi-Apollo, PNC-TCW—these arrangements channel bank capital through intermediaries who bring origination platforms, risk management infrastructure, and existing investor relationships.⁴ If you're originating $5-10 million monthly without institutional relationships, the expanded warehouse capacity may flow around rather than to you.

What structural terms actually matter in warehouse negotiations?

Eligibility criteria determine real-world advance rates more than headline terms. A warehouse advertising 85% advance rates becomes a 70% facility if your concentration limits, obligor caps, or geographic restrictions exclude 15% of your origination volume from the borrowing base.

Key structural points to stress-test:

Concentration limits: What percentage of the facility can be backed by your largest obligors, your largest industries, or your largest geographies? Tight concentration limits force diversification that may not match your origination strategy.

Trigger mechanics: Performance triggers (delinquency rates, loss rates, payment rates) can accelerate amortization or reduce advance rates mid-stream. Understand what metrics are measured, over what lookback periods, and what the cure rights look like.

Eligibility definitions: Does the facility accept your full product mix? If you originate both term loans and lines of credit, both secured and unsecured, both with and without personal guarantees—verify each variant qualifies. Ineligible collateral above threshold percentages can trigger covenant events.

Step-up pricing: Many facilities include spread increases if you breach covenants or if performance deteriorates. A facility priced at SOFR + 350 can become SOFR + 500 quickly.

Term-out mechanics: The value of a warehouse partially derives from the path to term securitization. Understand whether your warehouse provider has distribution relationships, whether they expect to lead your term deal, and what happens if you seek competitive execution.

What are the cyclicality risks alternative lenders should monitor?

The Fed's data shows expanded capacity in normal conditions. The question is what happens when ABS spreads widen or investor risk appetite contracts.

March 2020 provides a recent stress test. Warehouse facilities for mortgage originators largely stayed open—the top 15 warehouse lenders all increased commitments through 2020.¹² But the path wasn't smooth. Some lenders imposed stricter covenants on warehouse lines. Margin calls on hedging positions created liquidity stress even for borrowers current on their facilities. The resolution required Federal Reserve intervention through TALF and other facilities that provided a liquidity backstop, plus GSE forbearance that limited servicer exposure.

Alternative business lenders wouldn't have access to those same backstops in a future stress scenario. GSE forbearance doesn't help if your collateral pool consists of merchant cash advances or equipment leases. The expanding bank commitment to securitization vehicles increases the system's dependency on those bank balance sheets remaining available.

Warning signs to monitor: CLO spread widening beyond current levels (primary CLO spreads currently around SOFR + 110-120 basis points)¹¹, new issuance volumes declining quarter-over-quarter, warehouse lenders tightening eligibility criteria or raising advance-rate haircuts.

How should alternative lenders position their funding strategies?

The expanding bank commitment to securitization creates opportunity, but capturing it requires strategic positioning.

For originators at $50M+ annual volume: The warehouse market is increasingly favorable. Insurance company demand for esoteric ABS means term securitization exits are liquid for seasoned, performing portfolios. Focus on building track record metrics that translate to rating agency requirements—vintage performance data, static pool analysis, servicing quality indicators. The path from warehouse to term ABS to repeat issuance creates sustainable funding cost advantages.

For originators at $10-50M annual volume: The challenge is achieving scale sufficient for term securitization while managing warehouse capacity constraints. Consider programmatic flow agreements with larger platforms that can aggregate your origination into their facilities. Forward flow arrangements sacrifice some upside but provide certainty and reduce funding risk.

For originators below $10M: Direct warehouse access from major banks is increasingly difficult without institutional sponsorship. Explore fund finance structures where private credit funds provide facility access through their own bank relationships. The economics are less favorable but beat balance-sheet-only origination capacity.

Across all segments: Diversify your funding relationships. A single warehouse provider leaves you vulnerable to that bank's risk appetite shifts. Multiple facilities with different banks provide negotiating leverage and continuity protection. The incremental administrative burden is worth the risk mitigation.

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