Private credit used to sound like a niche backwater of finance. It no longer does. The Bank for International Settlements now places the global market at over $2 trillion, and its 2025 annual report says private credit funds’ assets under management had climbed above $2.5 trillion in 2024. In the United States alone, researchers at the Federal Reserve Bank of Boston estimate that private credit grew to roughly $1 trillion in 2023, large enough to compete with major traditional channels of business lending. (bis.org)
The central anxiety is not size alone, but hidden interdependence. A Federal Reserve note published on May 23, 2025 found that banks’ committed lending to private-credit vehicles rose from about $8 billion in the first quarter of 2013 to about $95 billion in the fourth quarter of 2024. The IMF went further in its October 2025 Global Financial Stability Report, warning that banks’ exposure to private equity and private credit funds had reached $497 billion in the second quarter of 2025, up 59 percent from the fourth quarter of 2024, with exposures increasingly concentrated among a handful of large managers. On April 13, 2026, the Financial Stability Board also singled out private credit as a vulnerability requiring heightened monitoring and said a dedicated report was imminent. (federalreserve.gov)
The AI era sharpens the risk in a very specific way. In March 2026, BIS researchers showed that outstanding private-credit loans to software-as-a-service firms had exploded from almost $8 billion in 2015 to more than $500 billion by the end of 2025, equal to 19 percent of total direct loans. As fears spread that generative AI could erode parts of the traditional software business model, software-company shares fell by almost 30 percent between October 2025 and February 2026. Over the same period, business development companies’ shares fell about 10 percent, and those with heavier software exposure underperformed peers by roughly five percentage points. Meanwhile, both the IMF and the FSB have warned that AI can amplify opacity, model risk, third-party dependence, and herd-like market correlations across finance. (bis.org)
Does that make private credit the inevitable epicentre of the next financial panic? Not yet. The Federal Reserve still says immediate risks appear limited because leverage is moderate and funding is relatively long term. But that is not the same as safety. In an AI-driven economy, an opaque market tied ever more closely to banks and unusually exposed to asset-light software borrowers looks less like a quiet alternative and more like a geological fault line. That is an inference, not a prophecy—but it is one regulators are clearly taking seriously. (federalreserve.gov)
