Global finance regulator flags private credit's role in driving AI boom

The private credit sector’s contribution to the AI surge could rebound negatively, with a sharp downturn potentially causing “sizeable” losses, the Financial Stability Board warned.

A new FSB report on private credit – the global watchdog that oversees financial authorities, including central banks in 24 nations – found that healthcare, services and technology have become the largest borrowers of private credit. This group includes AI firms, which have increasingly turned to private lenders to finance data‑centres and related infrastructure. In 2025, AI accounted for more than a third of private‑credit deals, up from 17% during the preceding five years. “Concentration in certain sectors may leave private‑credit funds vulnerable to idiosyncratic risks … [and] heighten exposure to regional or industry‑specific shocks,” the report noted.

Regarding AI‑related loans, the FSB cautioned that a “sharp correction in asset valuations, which have risen quickly, could trigger substantial credit losses for private‑credit investors”. Such a correction might be sparked by any significant shortfall in electricity supply – a vital input for building and operating data‑centres – leading to project delays or cancellations.

Furthermore, AI company valuations could suffer if investments create an excess of data‑centres that outstrips demand for AI, delivering lower‑than‑expected returns for investors.

The FSB findings add to worries about risky loans arranged by private‑credit firms, which lend to companies using investor capital rather than customer deposits or deposit‑backed loans, operating outside the traditional regulated banking system. Those concerns have already prompted a multibillion‑pound wave of withdrawals from some private‑credit funds, compelling several to limit the amount clients can withdraw.

Proponents argue that private‑credit lenders are better placed to monitor risk and tailor loan structures, yet the FSB observed that private‑credit borrowers generally possess lower credit scores and carry larger debt loads than those seeking loans from conventional banks.

At the same time, traditional banks are becoming more entangled with the private‑credit arena – either by lending directly to private‑credit funds, financing riskier fund portfolios, or extending credit to firms that simultaneously borrow from private‑credit lenders. An increasing number of banks are also forming partnerships with asset managers on private‑credit transactions.

This linkage exposes banks to an opaque sector where lenders “may have only partial information about borrowers, as illustrated by recent corporate bankruptcies and failings”, the FSB said.

The watchdog cited last year’s collapse of two US automotive firms backed by private credit – Tricolor and First Brands. Both companies have since faced fraud allegations, raising questions about whether private‑credit lenders were too lenient in assessing the creditworthiness of borrowers. Banks remain exposed through these channels.