The assets within global Non-Bank Financial Institutions (NBFIs) increased to $257 trillion by the end of 2024 – or more than half of total global financial assets, according to the Financial Stability Board (FSB). Of that, private credit – that is, lending by dedicated funds to typically mid-sized companies – is said to be around $1.5–2 trillion.
However, private credit has grown rapidly (from around $40 billion in 2000) and is already greater in nominal value than all outstanding subprime mortgages in 2007. And, if the broader market is accounted for – including distressed debt, asset-backed lending, commercial real estate, consumer finance and commercial corporate finance – private credit can be far larger – in the $10–50 trillion range.
This rapid growth took place during the long period of ultra-low interest rates between 2009 and 2022, combined with more stringent regulations constraining bank lending and the related rise in private equity.
Private credit has played a valuable role filling gaps left by banks and offering customizable and timely credit lines to medium-sized companies. It offers diversification benefits to investors, lenders and borrowers through vehicles like the Business Development Company (BDC) – which can be publicly listed or non-listed – investment funds and private credit collateralized loan obligations (CLOs).
Most private credit originates in the US (over 87 per cent in 2025) with Europe, the UK and Canada accounting for most of the rest. Large institutions and ultra-high net worth families dominate the investor base.
But the share of retail investors (individuals investing smaller volumes for personal accounts) in private credit funds has gone from near zero to 13 per cent in the last decade.
And US workers are increasingly investing in private credit funds via their pension plans, after regulatory restrictions were relaxed. Access to private credit could open up even more: in March 2026, the US Department of Labor proposed opening 401k (retirement) accounts to alternative assets like private credit.
The risk involved is considerable: Investors in private credit funds do not enjoy protections such as deposit insurance. Nor do these funds have access to the emergency liquidity support extended to banks.
Private credit is also concentrated in the services, technology and healthcare sectors. These borrowers typically lack public credit ratings or cluster around high risk ‘junk’ B- ratings. And they usually are more leveraged than borrowers in the syndicated loan market.
Private credit is lightly regulated and untested by a genuine credit cycle, let alone a deep and prolonged economic downturn. Are regulators taking it seriously enough?
What are the concerns about private credit?
Private credit has been in the headlines following some high-profile defaults. The FSB warns of deteriorating credit quality indicators with opaque default and valuation practices. And liquidity risks are increasing, as US funds increasingly allow more periodic partial redemption windows – attractive to retail investors who want the ability to quickly cash out.
Some sectors are particularly exposed: One-fifth of private credit loans are to Software-as-a-Service (SaaS) companies whose business models are threatened by AI. Large declines in software and BDC stock prices have been partly driven by fund investors, worried about the impact of AI, exiting through redemptions.
There are longer-term systemic concerns related to private credit too, due to its size and deep links to private equity, banks, pension funds and insurers.
Links between banks and private credit are numerous: Banks can partner with private credit funds, lend to investors in those funds, and invest directly in the funds themselves. They can also buy private CLOs. Synthetic risk transfers to banks can take place via credit-linked notes or credit default swap spreads. The complexity of these links could hinder banks’ risk assessments and stress tests.
Insurance companies are also exposed: some private equity firms have taken over (or secured controlling stakes in) insurance companies that then invested in related private credit. In the US, private equity-based insurers control nearly $900 billion in liabilities – up from $67 billion in 2012.
Meanwhile many asset managers that specialize in private markets operate both private equity and private credit strategies under the same roof. That creates potential synergies but also raises the risk of conflicts of interest. Globally, five large asset managers account for one-third of aggregate loan commitments in the private credit sector.
And risk also emerges from the various jurisdictions straddled by private credit vehicles: US and UK funds usually have fund managers, borrowers and investors located in many different countries – making oversight difficult.
What should regulators do?
Private credit is likely to follow the path of previous credit innovations, such as emerging market debt, high-yield bonds and subprime Collateralized Debt Obligations (CDOs). That would involve a reckoning, followed by improved regulation, and eventual maturity into a regular asset class.
Opinion is divided about the systemic implications of a significant downturn in the private credit market. Some make the case that risk is contained, due to the largely institutional investors and the still (relatively) modest size of private credit.
However, the direction of travel – rapid growth, increasing links to the banking and insurance sectors, and participation by retail investors – suggests private credit will become systemically important.
And the subprime crisis of 2008 demonstrated that opacity, hidden leverage, and underestimated financial linkages can turn into a significant threat to the international financial system. The 2008 crisis was far more serious than the estimated $1.3 trillion in subprime mortgages suggested, because of the layers of leverage involved.
Subprime mortgages were transformed into CDOs and CDOs of CDOs. Credit Default Swaps (CDS) – default insurance – were written that had a notional value many times that of the underlying mortgages. Banks and broker-dealers often financed these assets with high leverage ratios, magnifying the losses and systemic consequences. Similar opaque layers of leverage may make systemic risk from private credit significantly greater than it may appear.
An important lesson from 2008 is the need to prepare for a crisis in the market. How can policymakers do so today? The FSB was formed in the aftermath of the Global Financial Crisis in part to improve understanding of the linkages between the banks and NBFIs. It has done good work.
But standardizing and harmonizing definitions of private credit would help understand the true size of the market and cross-country comparisons.
Regulators and central banks have already moved to enhance reporting requirements for private funds. And central banks are attempting to look through the exposures of banks directly and indirectly.
An important additional measure would be for international and national agencies to coordinate a push to access the data needed to understand the systemic risks emerging from private credit – though in such a way as avoids overly onerous reporting requirements on private funds. And they should work to prepare appropriate cross-sectoral and cross-border financial stability architecture to contain spillovers from private credit and shadow banking more broadly.
Regulators need to ensure that retail investors are projected and better understand what they are buying. Some sophisticated ultra-high net worth ‘qualified investors’ have been scammed in private markets, so what chance do retail investors have? And funds that retail investors and 401k accounts are allowed to invest in should have diversified loans and sectors, liquidity provisions and high levels of transparency on the fund’s leverage and risks.