The Financial Stability Board has raised alarms about the potential risks associated with the private credit industry’s involvement in the burgeoning AI sector. A recent report from the global oversight body, which keeps a watchful eye on financial authorities across 24 nations, highlighted that the healthcare, services, and technology sectors have emerged as the primary recipients of private credit. Among these, AI companies have notably ramped up their reliance on private lenders to finance essential infrastructure like data centers. The report underscored that AI enterprises constituted over a third of private credit transactions in 2025, a significant rise from just 17% in the preceding five years.
This concentrated lending to specific sectors, the FSB cautioned, might expose private credit funds to unique risks and make them vulnerable to shocks within particular regions or industries. The report further warned that a sudden correction in asset valuations, which have been on a steep upward trajectory, could spell substantial credit losses for private credit investors. A key trigger for such a correction could be a major disruption in electricity supply, crucial for both building and operating data centers, potentially leading to project delays or cancellations.
Additionally, the FSB noted that AI company valuations might suffer if the current surge in data center investments results in an oversupply that surpasses AI demand, leading to lower-than-anticipated returns for investors. These findings add to the growing unease over the potentially hazardous loans orchestrated by private credit firms. Unlike traditional banks, these firms operate outside the regulated banking framework, relying on investor capital rather than customer deposits or loans backed by those deposits. This setup has recently triggered significant withdrawals from some private credit funds, prompting some firms to limit client withdrawals.
Proponents of private credit argue that these lenders are adept at risk management and can offer tailored loan solutions. However, the FSB pointed out that borrowers in the private credit sphere generally have lower credit scores and higher debts compared to those seeking loans from conventional banks. Despite this, traditional banks are increasingly entangled with the private credit sector. They’re either directly lending to private credit funds, financing risk-laden portfolios, or providing loans to companies that also borrow from private credit firms. Many banks are also entering partnerships with asset managers to engage in private credit transactions.