Report on Vulnerabilities in Private Credit

What it contains

The report defines private credit as direct lending by nonbank entities to mid-sized companies, negotiated bilaterally, and estimates it at US$1.5 to 2 trillion at the end of 2024. The United States is the largest market, followed by the euro area and the United Kingdom, where it has grown the most. It acknowledges that private credit can support economic activity with tailored financing and diversify credit in the system, but warns that it has not faced a prolonged downturn and deserves close attention.

On links with banks, direct exposure is concentrated in credit lines: data from FSB members add up to about US$220 billion of drawn and undrawn lines, and commercial estimates could be more than double, still a small share of banks’ assets and CET1 capital. The report identifies other channels that could raise vulnerability: fund portfolio financing (a type of securitised lending that lets funds take on leverage), revolving lines to companies that also borrow from private credit funds, and partnerships between banks and asset managers.

On borrowers, it notes that those with an external rating sit around B- and tend to have more leverage than the syndicated loan market; that certain practices can hide true leverage; and that defaults are low but rising if selective defaults and distressed exchanges are counted, together with greater use of payment-in-kind loans. Valuations are less frequent and more discretionary. Other vulnerabilities it mentions are links with insurers, layers of leverage in the ecosystem and liquidity mismatches in vehicles with redemption options. It concludes that available data are limited, among other reasons because of the lack of harmonised definitions.

Summary prepared by the Dominican Republic Risk Management Club from a reading of the original document, with the source verified on 7 October 2026. It does not replace reading the official text and is not advice.

See all publications