The Financial Stability Board has published a report warning that private credit, estimated at USD 1.5 trillion to USD 2.0 trillion in assets at end-2024, embeds financial stability vulnerabilities alongside its benefits as a source of tailored finance and investor diversification. The report says the market has grown rapidly, is concentrated in a few jurisdictions, and remains untested in a prolonged downturn. Key risks include deepening interlinkages with banks and other nonbanks, weaker borrower credit quality, opaque valuation practices, leverage, sector concentration, and liquidity pressures from funds offering redemption options. Across FSB members, available data capture around USD 220 billion of drawn and undrawn bank credit lines to private credit funds, while commercial estimates range from USD 270 billion to USD 500 billion, highlighting both interconnectedness and data gaps. The report also points to indirect exposures through bank facilities to companies borrowing from private credit funds and through synthetic risk transfers. Borrowers typically have lower credit quality and higher leverage than comparable public market issuers, payment-in-kind usage has increased, and default rates have risen from low levels. Lending is concentrated in technology, healthcare and services. To improve oversight, the FSB proposes a core set of comparable metrics covering market size, links with banks and insurers, leverage, liquidity, concentration, cross-border activity and borrower quality, and urges authorities to harmonise definitions, close fund- and loan-level data gaps, deepen analysis of links with private equity and insurers and liquidity mismatches, and share supervisory approaches on exposure aggregation, valuations and the use of private ratings.

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