The Financial Stability Board (FSB) has warned that the private credit industry's involvement in financing the artificial intelligence (AI) boom could lead to substantial losses if a sharp correction occurs.
Private Credit Exposure to AI and Other Sectors
A new FSB report reveals that healthcare, services, and technology sectors, including AI companies, are the largest borrowers of private credit. AI firms have increasingly turned to private lenders to fund datacentres and other infrastructure. The AI industry accounted for over a third of private credit deals in 2025, up from 17% in the previous five years. The FSB noted that this sector concentration exposes private credit funds to idiosyncratic risks and industry-specific shocks.
Risks of AI-Related Loans
The FSB warned that a sharp correction in rapidly increased asset valuations could cause sizeable credit losses for private credit investors. Such a correction could be triggered by a significant shortfall in electricity supply, which is critical for datacentre construction and operation. Additionally, AI company valuations could suffer if an oversupply of datacentres outpaces demand, leading to lower-than-expected returns.
The report adds to concerns about risky loans from private credit firms, which lend investor money outside the traditional banking system. Recent anxieties led to multibillion-pound withdrawals from some private credit funds, forcing caps on client exits.
Comparison with Traditional Banks
While advocates argue that private credit lenders are better at monitoring risks and offering bespoke loans, the FSB found that private credit borrowers typically have lower credit scores and higher debts than those using traditional banks. However, traditional banks are increasingly exposed to the private credit sector through direct lending, financing riskier portfolios, or lending to firms that also borrow from private credit firms. Many banks are partnering with asset managers on private credit deals.
Bank Exposure and Recent Failures
This exposes banks to an opaque sector where lenders may have only partial borrower information, as illustrated by recent corporate bankruptcies. The FSB cited the collapse of two private credit-backed US automotive companies, Tricolor and First Brands, which faced fraud allegations. Banks including JP Morgan and Barclays suffered losses from Tricolor's collapse, while UBS and Jefferies reported significant exposures. The FSB concluded that these failures demonstrate how tightly integrated banks are in the corporate credit web.
