Bank of Canada Warns About Risks in Private Credit Market

The Bank of Canada is closely monitoring the growth of private credit in Canada and abroad. Private credit refers to loans taken out from non-bank lenders, such as asset managers, insurers, and pension funds. These firms provide financing for businesses that are too small or lack a strong track record to access traditional bank loans.

The share of Canadian businesses using private credit is still limited, but the Bank of Canada notes that global adoption has been rapid. In its 2026 financial stability report, the Bank warned about the risks associated with private credit. A recent paper by economists at the central bank highlighted concerns about the lack of transparency and complex structures in private lending.

The Bank estimates that there is a combined value of $500 billion in private lending by Canadian investors and banks to private credit funds. Most of this activity occurs outside Canada, particularly in the United States. Insurers and pension funds are considered stable investors in the space, but asset managers and banks' exposures to private lending are seen as relatively low-risk.

Peter MacKenzie, a senior policy analyst at the C.D. Howe Institute, notes that private credit emerged after the 2008-09 financial crisis, when big banks reduced lending to small businesses. However, he also warns about the lack of transparency and potential channels of contagion in the event of a shock.

The Bank's analysts have flagged concerns about the growth of private credit happening largely outside a regulatory environment. This poses a bigger risk for investors and Canada's financial stability. MacKenzie adds that today's concern over private credit is tied to friction in the United States, particularly after high-profile bankruptcies in the space.