Financial Stability Board Flags Systemic Risks in Fast-Growing Private Credit Market

The Financial Stability Board warned that the private-credit sector’s rapid growth, especially its financing of AI infrastructure, creates “sizeable” credit-loss risk if asset valuations correct sharply. AI-related loans accounted for over one-third of private-credit deals in 2025, up from 17 % five years earlier. The report cited the 2025 collapse of private-credit-backed U.S. automotive firms Tricolor and First Brands, which caused losses for banks including JP Morgan, Barclays, UBS and Jefferies, illustrating tight bank integration. It also flagged that a shortfall in electricity supply for datacentres could delay projects and that default rates are rising across the sector.

The GuardianReutersCNBCReport on Vulnerabilities in Private Credit

The market is valued at $1.5-$2 trillion (AIMA cites $3.5 trillion). Banks have $220 billion in credit lines to private-credit funds, possibly double that amount. Retail investors hold about 13 % of assets, and five asset managers account for roughly one-third of loan commitments. Life insurers have ~10 % exposure, non-life insurers ~3 %.

Reuters

A sharp correction in AI-related valuations could cause sizeable losses for private-credit investors and spill over to banks, insurers and asset managers linked via credit lines. Liquidity mismatches in open-ended vehicles may force sales of illiquid assets, while excess datacentres could depress AI returns, amplifying sector shocks.

The Guardian

FSB Secretary-General John Schindler said the private-credit ecosystem is “increasingly characterised by deepening interconnections between asset managers, banks, insurers and private-equity firms.” He warned that “default rates, though still moderate, are rising” and urged greater transparency and liquidity oversight.

ReutersCNBCThe GuardianReport on Vulnerabilities in Private Credit

Proponents claim non-bank lenders can monitor borrowers more closely and tailor financing, potentially delivering lower default rates than banks. They argue bespoke loan structures offset the higher credit-score risk noted by the FSB.

The Guardian

The FSB estimates the market at $1.5-$2 trillion, while the Alternative Investment Management Association puts it at $3.5 trillion, highlighting data gaps. Banks’ exposure may be double the $220 billion reported, underscoring measurement uncertainty.

CNBC

• “This focus on specific sectors may leave private credit funds exposed to idiosyncratic risks … [and] increase exposure to region or industry-specific shocks,” — Financial Stability Board (FSB)

The Guardian

• “sharp correction in asset valuations, which have increased rapidly, could lead to sizeable credit losses to private credit investors” — Financial Stability Board (FSB)

The Guardian

• “The private credit ecosystem is increasingly characterised by deepening interconnections between asset managers, banks, insurers and private equity firms,” — John Schindler, FSB Secretary-General

Reuters

The FSB urges national regulators to tighten data standards, monitor liquidity structures and assess concentration risks as private credit expands further into AI and retail markets.

Reuters