AI payout or meltdown: Global watchdog warns over ‘sizeable’ private credit industry risks

The Financial Stability Board (FSB) has issued a stark warning regarding the rapidly growing private credit market and its heavy exposure to the artificial intelligence sector.

In line with AI concentration risk, the industry share of private credit deals surged to over 33% in 2025, nearly doubling its average of 17% from the previous five years. 

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The FSB warned that AI asset valuations have increased so rapidly that a “sharp correction” could result in massive losses for investors. By focusing heavily on tech infrastructure and data centers, private credit funds are becoming dangerously exposed to industry-specific shocks.

The report notes that companies turning to private lenders typically have lower credit scores and higher debt loads than those qualified for traditional bank loans. Unlike regulated banks, private credit firms use investor money to provide bespoke loans. 

The FSB cited a “dearth of public information” on these borrowers making it harder to monitor systemic risk. Recent anxieties have already triggered a multibillion-pound surge in withdrawals, forcing some funds to cap exits to prevent a total collapse. 

While private credit operates outside traditional banking, the FSB warned that major banks-including JP Morgan, Barclays, and UBS-are tightly integrated into this market. Banks are exposed by lending directly to these funds or financing risky portfolios. 

This means a failure in the private credit sector could quickly bleed into the broader global financial system.

The FSB said: “This could be triggered by any significant shortfall in the supply of electricity, a critical factor in the construction and operation of datacenters, which could lead to delays or cancellations of projects.”

Conversely, the FSB warned that a “sharp correction in asset valuations, which have increased rapidly, could lead to sizable credit losses to private credit investors”.

The report underlines the 2025 failures of US automotive firms Tricolor and First Brands, as reported by The Guardian. 

Both firms faced fraud allegations following their collapse, raising questions about whether private lenders are being too lenient in their due diligence processes compared to traditional banks. 

Furthermore, the FSB report added that these failures demonstrate “how integrated banks can be in the intricate web of exposures in corporate credit.” In addition, these banks have resulted in increased inaccuracy over the current financial sector.