European Central Bank Banking Supervision highlights data gaps and concentration risk from banks’ links to private credit funds and other NBFIs

In a Eurofi Magazine contribution, Patrick Montagner of European Central Bank Banking Supervision argues that the growth of non-bank credit has not displaced banks but has increased interconnections between banks and non-bank financial institutions (NBFIs), creating less transparent channels for risk transmission that are harder to monitor through existing supervisory tools. The article notes that banks participate in private markets by lending to private equity and private credit funds, providing credit lines to portfolio companies, and offering prime brokerage and derivatives services. It points to the ECB’s 2024 exploratory review finding that banks cannot systematically identify transactions where they lend alongside private credit funds to the same company, potentially leading to underestimation of concentration risk when exposures to a fund and to companies in its portfolio are assessed separately. It also describes ECB initiatives aimed at closing data gaps, including a dedicated monitoring exercise on private market exposures and an exploratory scenario analysis on counterparty credit risk that found wide variation in banks’ NBFI-related risk profiles, with collateral practices materially affecting stress outcomes. The contribution further cautions against distributing private market products to retail investors without strong disclosure and conduct standards, and calls for a stronger macroprudential framework for NBFIs supported by better data sharing, enhanced coordination among authorities and system-wide stress testing.