Private credit has turned into the blind spot of American banking. It started small, just a niche corner for high-yield loans, and now it’s a $1.7 trillion machine that barely anyone can see inside. Banks keep pouring money into these private lenders, hundreds of billions at a time, but almost none of it shows up where it should. The rules don’t make them say much, and most don’t.
“US banks have lent out about $300 billion to private credit providers, as lending to all non-depository financial institutions (NDFIs) has surged to $1.2 trillion… The data is based on the banks’ quarterly reporting of their NDFI exposure to the Federal Reserve’s Board of Governors.”
https://dailyhodl.com/2025/10/25/us-banks-now-exposed-to-nearly-300000000000-in-private-credit-debt-signaling-increased-levels-of-asset-risk-moodys/
That $300 billion represents the visible portion. The rest remains buried under opaque partnerships and indirect holdings. Moody’s analysis shows how deeply traditional lenders have embedded themselves in the private credit boom.
“Private credit assets under management (AUM) have tripled over the past decade… Banks have adopted new strategies in reaction to the shifting market environment, with a focus on growing loans to non-depository financial institutions.”
https://www.moodys.com/web/en/us/insights/data-stories/breakdown-of-banks-annual-reporting-on-private-credit.html
The Fed has been sounding the alarm, but even it admits it doesn’t have a clear picture. Private credit doesn’t fit into any clean category. Each bank defines it differently, files it differently, and hides it behind different reporting lines. Nobody really knows how big the risk is, only that it keeps growing.
“Despite still being a relatively small fraction of the overall credit market, private credit has grown roughly five times since 2009… There is no universal definition, and reporting remains inconsistent across institutions.”
https://www.federalreserve.gov/econres/notes/feds-notes/bank-lending-to-private-credit-size-characteristics-and-financial-stability-implications-20250523.html
Regulators tried to step in last December. They floated a plan that would make banks report more detail about the loans they extend to private credit funds. But even under that plan, most of what matters would stay hidden.
“On December 27, 2023, the US federal banking regulators proposed a new set of reporting requirements for bank loans and commitments to private credit lenders and intermediaries… While banks will not be required to report the individual names of direct or underlying private credit obligors…”
https://www.mayerbrown.com/en/insights/publications/2024/01/private-credit-reporting-requirements-proposed-by-us-banking-regulators
So the public still won’t know who’s borrowing the money or what kind of deals sit underneath it. Even regulators won’t see much beyond totals and averages. The result is a guessing game about which banks are sitting on the riskiest portfolios and which ones might already be in trouble.
And trouble has already started to show. Zions Bancorp and Western Alliance, two midsize regional lenders, have both reported large loan losses linked to the bankruptcy of a Southern California real estate investment firm.
“The bad loans reported by Zions Bancorp and Western Alliance Bancorp this week can be traced back to the bankruptcy of a commercial real estate investment firm in Southern California… Zions listed 16 addresses of properties pledged as collateral to more than $60 million loaned to an investor group… When MOM CA Investco filed bankruptcy, it led to a planned sale of some its properties. It turned out that Zions was not first in line for repayment as expected.”
https://www.bloomberg.com/news/newsletters/2025-10-17/how-two-regional-banks-came-up-short-evening-briefing-americas
The collapse exposed a simple but devastating truth: collateral chains in the private credit world are often tangled, with multiple lenders unknowingly relying on the same assets for repayment.
Fitch noted that October alone brought a surge in defaults that caught the market off guard.
“The month saw one high-yield and four loan defaults, most notably First Brands, whose bankruptcy surprised the market with its significant syndicated loan exposure and off-balance-sheet financing issues.”
https://www.fitchratings.com/research/corporate-finance/us-corporate-default-landscape-reshaped-by-surprise-bankruptcy-private-debt-15-10-2025
Even before these defaults, analysts had warned that regional banks were running thin on reserves despite months of “stress testing” and emergency capital injections.
“U.S. regional banks are showing increasing signs of stress even after they stockpiled more money to absorb credit losses… Banks are likely to see more delinquencies and loan losses in the coming quarters as they come under pressure from inflation, geopolitical concerns and losses from loans to lower income consumers.”
https://money.usnews.com/investing/news/articles/2025-10-17/us-regional-banks-face-more-stress-despite-bigger-reserves-morningstar-says
The private credit exposure that Moody’s estimates at $300 billion is only part of the picture. When private equity and collateralized loan obligations are included, the total risk footprint tied to non-bank lending climbs closer to $5 trillion. And because so much of it sits off balance sheets or inside obscure partnerships, even the Federal Reserve admits it cannot see the full map of potential losses.
The quiet build-up of this hidden leverage now resembles the subprime shadow of 2007 — a market that looks safe on paper but hides layers of unsecured debt beneath. The numbers are bigger, the disclosures thinner, and the next default may already be buried inside the next quarterly report.