Global Watchdog Warns of Rising Risks in Private Credit Boom

The fast-growing private credit industry’s deepening links with traditional banks and asset managers could pose risks to the global financial system, the Financial Stability Board (FSB) said, warning that some indicators point to rising defaults, Phoebe Seers reported for Reuters.

The FSB estimated the private credit market at between $1.5 trillion and $2 trillion based on 2024 data, while the Alternative Investment Management Association put the figure higher at $3.5 trillion.

Signs of stress are emerging in private credit—typically lending to mid-sized companies by non-bank institutions—including rising defaults and limited transparency, which complicates oversight for regulators and investors, the FSB said in its report, Vulnerabilities in Private Credit.

The watchdog also highlighted the “retailization” of private credit, particularly in the U.S., where funds are increasingly marketed to wealthy individual investors, as a potential amplifier of systemic risk.

The FSB estimated the private credit market at between $1.5 trillion and $2 trillion based on 2024 data, while the Alternative Investment Management Association put the figure higher at $3.5 trillion.

The sector has expanded rapidly since the Global Financial Crisis, partly due to tighter banking regulations. However, recent borrower collapses in the U.S. and UK have triggered losses and raised concerns about underwriting standards.

HSBC recently reported a $400 million loss linked to the collapse of British lender Market Financial Solutions.

“The private credit ecosystem is increasingly characterized by deepening interconnections between asset managers, banks, insurers, and private equity firms,” said FSB Secretary General John Schindler.