The Financial Stability Board has issued a warning regarding the private credit industry’s involvement in the ongoing AI boom, cautioning that potential sharp corrections could result in substantial losses. A recent report by the global oversight body, which keeps an eye on financial entities including central banks across 24 nations, highlights that sectors such as healthcare, services, and technology have become major borrowers of private credit. This trend includes AI companies, which are increasingly relying on private lenders to finance essential infrastructure like datacentres. Notably, the AI sector represented over one-third of private credit deals in 2025, a significant rise from 17% over the previous five years.
The report warns that focusing heavily on specific industries might leave private credit funds vulnerable to unique risks and make them susceptible to shocks specific to certain regions or industries. The FSB specifically noted the AI loans, cautioning that a sudden correction in asset valuations, which have been climbing swiftly, could lead to significant credit losses for investors in private credit. A critical point of concern is the potential for a major electricity supply shortfall, which is vital for the construction and operation of datacentres, potentially causing delays or cancellations of projects.
Moreover, the valuations of AI companies could suffer if investments result in an oversupply of datacentres, eventually surpassing the demand for AI, thus yielding lower-than-anticipated returns for investors. The report amplifies existing apprehensions about the potentially risky loans organized by private credit firms. These firms lend to companies using investor money instead of customer deposits or loans backed by those deposits, operating outside the traditional, regulated banking framework. Such concerns recently led to a substantial surge in withdrawals from some private credit funds, prompting them to limit the amount clients can withdraw.
While proponents argue that private credit lenders are more adept at risk management and providing customized loan solutions, the FSB points out that borrowers from private credit typically have lower credit scores and greater debts compared to those seeking traditional bank loans. Nevertheless, traditional banks are increasingly becoming entangled with the private credit sector. This involvement includes directly lending to private credit funds, financing riskier fund portfolios, or lending to firms that simultaneously borrow from private credit firms. Furthermore, an increasing number of banks are forming partnerships with asset managers to engage in private credit deals.