The private credit industry is playing a significant role in the current AI boom, but the Financial Stability Board (FSB) has issued a warning that this could lead to substantial financial setbacks. The global financial watchdog, which oversees authorities such as central banks across 24 countries, has identified the healthcare, services, and technology sectors as the largest borrowers from private credit sources. AI companies, in particular, have increased their reliance on private lenders to finance datacentres and related infrastructure, making up more than a third of private credit transactions in 2025, a substantial increase from 17% over the past five years.
The FSB’s report highlights the potential risks associated with this concentrated borrowing, warning that a sharp drop in asset valuations could result in significant credit losses for private credit investors. Such a downturn could be triggered by disruptions in the electricity supply, crucial for the construction and operation of datacentres, potentially leading to project delays or cancellations. Additionally, the report cautions that AI company valuations might suffer if the influx of investments leads to an oversupply of datacentres, eventually exceeding the demand for AI and resulting in lower-than-anticipated returns for investors.
These warnings are part of broader concerns regarding the nature of loans arranged by private credit firms. These firms, which lend using investor money rather than traditional customer deposits or deposit-backed loans, operate outside the conventional banking framework. Recently, these concerns have contributed to a significant increase in withdrawals from private credit funds, prompting some firms to limit the amount of money clients can withdraw.
Proponents argue that private credit lenders possess the expertise to better manage risks and offer customized loan solutions. However, according to the FSB, borrowers in the private credit sector generally have lower credit scores and greater debt levels than those obtaining loans from traditional banks. Despite this, conventional banks are becoming increasingly intertwined with the private credit sector by lending directly to private credit funds, financing riskier portfolios, or lending to companies that are also borrowing from private credit firms.
This growing entanglement has led to more banks partnering with asset managers on private credit deals, further entrenching the ties between traditional banking institutions and the private credit market. The FSB’s report underscores the potential vulnerabilities within this system, highlighting the need for careful monitoring and management of risks to avoid significant financial fallout.