Federal Reserve Reviews Private-Credit Risks with Major Banks

The Federal Reserve Bank of New York has been engaging with major lenders, including JPMorgan, Wells Fargo, Barclays, and Morgan Stanley, to assess private-credit risk on bank balance sheets. These meetings, which began in the spring, focus on risk controls and the quality of collateral backing loans extended to private-credit firms. The review was prompted by JPMorgan’s decision in March to reduce the value of certain private-credit loans, particularly those linked to struggling software businesses affected by artificial intelligence.

Bank lending to nonbank financial firms has surged from about $300 billion in 2016 to over $1.5 trillion, representing roughly 11% of total bank loans outstanding. Regulators outside the U.S., such as the European Central Bank and the Bank of England, are also scrutinizing private credit. The Bank of England warned that private-credit investments could face challenges if financial conditions deteriorate, citing past redemption pressures in certain funds.

The SEC has urged private-credit managers to improve valuation practices, emphasizing that a lack of market data does not justify weak valuations. Private-credit investments held by registered funds have grown nearly 60% since 2020, reaching $270 billion by the end of 2025. The industry has faced criticism over inconsistent loan valuations and the failure to reflect weaker company performance in valuations. Despite redemption pressures easing, concerns remain about the transparency and reliability of private-credit valuations.