By Tom Braithwaite in New York

Banks are being discouraged from large project finance deals by new global capital rules and the eurozone crisis, say market participants, who add that infrastructure schemes will increasingly be funded by investors.

Standards ordered by the Basel committee of international regulators will make large long-term loans harder to hold on banks? balance sheets, according to senior bank executives in the US and Europe.

Project finance loans to build power stations, wind turbines and bridges are unattractive because of their size, tenor and illiquidity, the executives said. At the same time, troubled European banks are pulling back – shrinking their balance sheets and shying away from dollar-denominated loans.

But appetite remains for project finance loans to build infrastructure, with $298bn of global debt financing last year, according to Dealogic. One senior European bank executive said he was retreating from the market and he expected emerging market institutions and the capital markets to pick up the slack.

Tyler Dickson, head of capital markets origination at Citigroup, said his bank was looking to make the best of the new market pressures by driving more of the loans to investors. ?We need to convert the market from a bank-driven ?buy and hold? to a bridge market with a healthy capital market presence.?

The push by Citi, which believes it can reap fees at different parts of the process, from origination and syndication to derivatives deals and advisory work, is one example of the many changes to banks? business models.

John Anderson, head of corporate finance origination at John Hancock, a life assurer and buyer of syndicated project finance loans, said: ?There?s been both bank financing and fixed rate bond financing supporting the US project finance market for some 20 years, but the banks have had the bulk of the market, and predominantly European banks.

?Will that bid from Europe be pulled back? We?ve seen some of that from some of the state-owned institutions when their governments have in effect said ?your job is to support industrial development at home, not in North America?.?

Citi is betting that more investors such as John Hancock will want to replace the banks, believing that the long-term assets can be distributed to investors, particularly insurance companies who want long debt maturities to match their liabilities.

? The Financial Times Limited 2011