Private credit has long sold itself as the discreet adult in the room: patient capital, bespoke loans, fewer daily market tantrums. The Financial Stability Board’s report of May 6, 2026, does not deny those advantages. But it argues that the market’s apparent calm may partly be an effect of darkness rather than resilience. By the end of 2024, private credit had swollen to an estimated $1.5 trillion to $2 trillion, heavily concentrated in a few jurisdictions, yet it has never been truly tested by a prolonged, severe downturn. That is why the FSB’s warning matters: what looks stable in sunshine can behave very differently in a storm. (fsb.org)

The phrase “invisible leverage” captures the central anxiety. Leverage does not sit neatly in one place; it is layered across portfolio companies, private credit funds, private equity sponsors, and even investors themselves. Banks are part of the web too. The FSB says member data show about $220 billion in drawn and undrawn bank credit lines to private credit funds, while commercial estimates run as high as $270 billion to $500 billion. Add in revolving credit facilities for the same corporate borrowers, synthetic risk transfers, and private credit CLOs, and the system starts to look less like a clean alternative to banking than a shadow extension of it. The ECB made a similar point in June 2025, warning that banks face “hidden leverage and blind spots” in their private-market exposures. (fsb.org)

The borrowers themselves are not especially comforting. The FSB notes that, where ratings exist, private credit borrowers cluster around the single-B range and tend to carry more leverage than comparable borrowers in broadly syndicated loan markets. It also flags the rise of PIK structures, which let troubled companies defer cash interest and quietly increase indebtedness; by the FSB’s account, PIK is used in roughly 12% of loans and has risen markedly since 2022. Meanwhile, private credit’s march toward retail investors has created a classic tension: illiquid assets packaged with periodic liquidity. In early 2026, several semi-liquid private credit funds reportedly had to enforce withdrawal limits after unusually large redemption requests, a reminder that “private” does not mean immune to runs. The IMF had already warned in April 2024 that if this market keeps growing while remaining opaque and lightly supervised, today’s niche vulnerability could become tomorrow’s systemic one. (fsb.org)