Global finance watchdog warns over private credit industry fuelling AI boom
Summary
The Financial Stability Board (FSB), a global financial watchdog, warned that private credit firms heavily lending to AI companies could face big losses if the AI sector faces problems. The AI industry now takes more than a third of private credit deals, raising risks for lenders and banks linked to this market.Key Facts
- The FSB monitors financial authorities in 24 countries and released a report on private credit risks.
- AI companies received over a third of private credit loans in 2025, up from 17% in the previous five years.
- Private credit lenders provide loans using investor money, not regular bank deposits, and often lend to companies with weaker credit.
- Risks include a potential drop in AI company values if too many datacentres are built or if electricity supply issues delay projects.
- Some private credit funds faced large withdrawal demands recently, forcing them to limit how much money clients can take out.
- Traditional banks are connected to the private credit market by lending to these funds or companies borrowing from both banks and private lenders.
- The collapse of two US auto companies backed by private credit in 2023 led to losses for big banks such as JP Morgan, Barclays, UBS, and Jefferies.
- The FSB highlighted that these events show how banks and private credit firms are closely linked in corporate loans, raising financial system risks.
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