Private Credit’s Gold Rush Draws Regulators and Bank Warnings

Private credit has evolved from a niche financing tool to a fixture of modern capital markets, and as it expands, banks, regulators and investors are taking a closer look at the risks embedded within that lending class.

Direct lending by nonbank financial institutions expanded rapidly in the years following the global financial crisis, when tighter regulations curtailed banks’ willingness to extend loans to highly leveraged companies.

Asset managers stepped into that vacuum, assembling vast pools of capital to fund corporate borrowers outside traditional bank syndicates. The resulting ecosystem now encompasses private debt funds, business development companies, structured vehicles and credit funds financed in part by the banking system itself.

Questions are mounting about transparency and systemic exposure, particularly as large banks disclose new details about their lending relationships with nonbank financial institutions.

A Growing Focus on Vulnerabilities

The debate surrounding private credit has sharpened in recent months as bank filings and management commentary illuminate the sector’s scale and potential vulnerabilities.

Private credit funds have attracted investors seeking higher yields than those available in public bond markets. The asset class operates largely outside the transparency standards applied to traditional banking or public debt markets. Loans are typically held in private portfolios and valued internally by the funds that originate them, which can obscure deteriorating credit conditions until stress becomes unavoidable.

The overarching concern may not herald an imminent crisis, but the structure of the market could amplify shocks if credit conditions deteriorate.

Bank disclosures are now offering one of the clearest windows into the sector. Lending by banks to non-deposit financial institutions, which includes (but is not limited to) private credit funds and related vehicles, has increased markedly in recent years.

According to data from the Federal Reserve Bank of St. Louis, bank loans to these institutions reached roughly $1.14 trillion last year.

Dimon’s Warning

Executives at the largest banks in the United States have also begun speaking more openly about the market’s potential fragilities.

During commentary on the sector in October, JPMorgan Chase CEO Jamie Dimon cautioned that credit markets rarely experience isolated failures.

“When you see one cockroach, there are probably more,” Dimon told analysts.

Executives have emphasized that the rapid growth of the market warrants close monitoring, particularly because much of the lending occurs outside the disclosure frameworks that govern public debt markets.

The scale of the market also means that banks remain intertwined with it. While asset managers originate many of the loans, banks frequently provide credit lines, financing facilities and other funding structures that support the funds themselves.

Blue Owl and Market Anxiety

Concerns about private credit intensified last year following stress among companies financed by the sector and a decline in valuations among publicly traded credit managers.

Shares of firms closely tied to private credit activity, including Blue Owl Capital and other large asset managers, have traded below their recent highs amid concerns about borrower defaults and the sustainability of underwriting standards.

Banks’ Exposure

Bank filings are increasingly shedding light on how deeply major financial institutions are linked to this market.

In its fourth-quarter financial presentation, JPMorgan disclosed that its exposure to nonbank financial institutions, a category that includes private credit vehicles (but again is not limited to that class) and related intermediaries, has grown substantially over the past several years.

The bank reported approximately $160 billion in such exposure in 2025.

Internal disclosures further break down the exposure across several categories, including private equity funds, mortgage credit intermediaries, business credit intermediaries and other investment vehicles.

These exposures include drawn and undrawn commitments to a range of counterparties, illustrating how banks participate indirectly in the private credit ecosystem even when they are not the ultimate lenders to corporate borrowers.

Regional Banks and New Disclosure Rules

The sector’s complexity has also prompted regulators to push for clearer reporting from U.S. banks.

Beginning in late 2024, banks with more than $10 billion in assets were required to disclose detailed lending exposure to non-deposit financial institutions through updated regulatory reporting frameworks, including the Federal Reserve’s FR Y-14Q reporting process and expanded call-report categories.

These disclosures break lending into multiple categories, including loans to mortgage credit intermediaries, business credit intermediaries, private equity funds and consumer credit intermediaries.

Data compiled from regulatory filings, aggregated by S&P, showed that loans to non-deposit financial institutions accelerated again in the fourth quarter of 2025, increasing by roughly $129.7 billion during the period.

Across the banking industry, total lending to these institutions reached approximately $1.57 trillion, per the data. Within that, lending to private equity funds represented nearly $369 billion, with a cumulative $38 billion at smaller banks with up to $100 billion in assets.

Large banks dominated the category, with institutions holding more than $500 billion in assets accounting for about 68% of loans to non-deposit financial institutions, according to the data.

Industrywide credit quality has remained relatively stable so far, with delinquency ratios in the category rising only marginally to about 0.14%, the data showed.

A Market Worth Watching

For banks and regulators, the central question surrounding private credit is not whether the sector will continue to grow. That expansion appears likely as investors seek yield and borrowers pursue flexible financing. In terms of the mechanics, banks provide financing to private credit funds, asset managers originate loans to corporate borrowers, and institutional investors supply capital. The structure creates a network of capital that also has the potential to spread risk across multiple parts of the financial system.

Whether the market remains resilient during the next economic downturn will depend on underwriting discipline, borrower quality and the ability of lenders to recognize problems before they spread.