A major global financial watchdog is calling for stronger regulatory scrutiny of the rapidly expanding private credit sector, warning that its growing size and increasing links to traditional banking and investment systems are raising vulnerabilities across global markets.
The Financial Stability Board (FSB), which includes central bankers, finance ministers and regulators from G20 economies, released a report Wednesday highlighting risks tied to the nearly $2 trillion private credit industry, pointing to limited transparency in lending structures and uneven valuation practices as key concerns.
The report said private credit has become more deeply connected to banks, insurers, and asset managers through credit lines, revolving facilities and partnership structures, increasing the potential for stress to spread across financial systems. The FSB estimated banks currently have about $220 billion in drawn and undrawn credit exposure to the sector, though it noted commercial data suggests the true figure may be significantly higher, according to the Financial Stability Board analysis of private credit vulnerabilities.
Private credit, which expanded sharply after the 2008 global financial crisis as banks reduced lending in riskier markets, now finances a broader range of companies than in its early years, including larger corporate borrowers. The sector is estimated to range between $1.5 trillion and $2 trillion globally, with the U.S. accounting for the largest share, followed by Europe and the U.K., according to the FSB report on vulnerabilities in private credit markets.
The watchdog flagged concerns over "riskier fund portfolio financing" and situations where companies borrow simultaneously from banks and private credit funds, a structure that increases interdependence between lending channels. It also pointed to the growing use of payment-in-kind loans, where borrowers defer cash interest payments, as a potential sign of weakening credit conditions in parts of the market.
The report comes as broader financial markets continue to adjust to volatility linked to geopolitical and economic disruptions, including oil price swings and supply chain pressures tied to the Iran-related conflict affecting global energy flows. Those developments have already contributed to shifts in borrowing costs and liquidity conditions across multiple sectors, including energy and manufacturing.
Private credit exposures have also drawn attention in Europe, where major lenders have reported sizable positions in the sector. Barclays has disclosed roughly $20 billion in exposure, while Deutsche Bank has reported about $30 billion, and BNP Paribas around $25 billion, according to earnings disclosures cited in Reuters reporting on European bank exposure to private credit markets.
The FSB also raised concerns about data gaps in the sector, noting that inconsistent reporting standards make it difficult to assess total leverage and risk concentration across funds and borrowers. It said valuation opacity and complex fund structures could amplify market stress during periods of financial tightening.
Retail participation has also expanded through semi-liquid investment vehicles that provide exposure to private credit portfolios, a shift that has broadened the investor base beyond institutional participants such as pension funds and insurance companies. That trend has added another layer of scrutiny from regulators monitoring liquidity mismatches and redemption pressures.
Broader financial stability concerns have also been echoed by central banks in Europe, including the European Central Bank and the Bank of England, both of which have recently highlighted risks linked to asset quality and valuation practices in non-bank lending markets.
A background analysis from the Wharton School at the University of Pennsylvania noted that private credit growth has been driven by post-crisis banking regulation shifts and investor demand for higher-yielding assets, while also emphasizing the increasing complexity of risk transmission between private funds and traditional lenders.
The FSB said national regulators should increase supervision of private credit activity, including exposure tracking, valuation practices and liquidity management across both banks and non-bank financial institutions, as the sector continues to expand within global capital markets.
