FSB flags risks in booming private credit

On May 6, 2026, the Financial Stability Board (FSB) issued a report warning that the rapid expansion of the private credit market and its closer ties to traditional finance could pose risks to global financial stability. The watchdog highlighted that private credit is increasingly interconnected with banks and asset managers at a time when default rates are rising and transparency remains limited.

According to the report, the FSB is concerned that stress in this lightly regulated corner of finance could be transmitted more easily into the core banking system. The growing involvement of asset managers in arranging and holding private credit exposures was also cited as a potential channel through which shocks could propagate across markets.

The FSB estimated the overall size of the private credit market at between $1.5 trillion and $2 trillion. A separate estimate from the Alternative Investment Management Association put the figure significantly higher, at $3.5 trillion. The wide range underscores uncertainty about the true scale of activity in a sector where disclosure is often limited.

Regulators noted that the combination of rapid growth, rising defaults and limited visibility into underlying loans complicates risk assessment. The report pointed to opaque lending structures and data gaps that make it difficult to track who ultimately bears credit risk when borrowers run into trouble.

The FSB said vulnerabilities are building as default rates climb in parts of the private credit market. While the report did not quantify the increase, it warned that weakening borrower creditworthiness could reveal fragilities in portfolios that have not been tested through a full credit cycle.

Transparency was identified as a central concern. The FSB cited a lack of standardized reporting on loan terms, collateral and performance, which can obscure concentrations of risk across lenders and investors. This opacity may complicate efforts by regulators and market participants to respond swiftly if conditions deteriorate.

The report highlighted the artificial intelligence (AI) industry as a rapidly expanding user of private credit. The FSB said AI companies accounted for more than a third of private credit deals in 2025, a sharp rise from 17% over the previous five years.

This concentration of lending to a single, fast-growing sector was identified as a potential source of sector-specific risk. The FSB linked this trend to broader concerns about borrower creditworthiness and the possibility that stresses in AI-related businesses could have an outsized impact on private credit portfolios.

Traditional banks and asset managers were singled out as key nodes in the expanding web of private credit exposures. The FSB warned that their deepening involvement increases the likelihood that shocks in private markets could affect the regulated financial system.

By emphasizing interconnections, the FSB signaled that vulnerabilities in private credit can no longer be viewed in isolation. The report suggested that monitoring these links, alongside sectoral concentrations such as AI, will be critical to understanding how stress in private credit might influence broader market stability.