Senior executives at several of the nation’s biggest banks say they are tracking private credit exposure closely and running stress tests on those portfolios, even as they express confidence in their current positions. The push to re-examine exposure comes amid intensified scrutiny of the $3.5 trillion private credit market after recent headline risks tied to artificial intelligence disruption, investor withdrawals and signals of credit stress among alternative managers.
Three of the six largest U.S. lenders disclosed roughly $108 billion of financing exposure to private credit or related loans during quarterly results, underscoring how deeply interconnected traditional banks are with the fast-expanding alternative lending sector. Private credit has attracted institutional and wealthy investors with promises of higher, steadier yields, but its rapid growth into less liquid and harder-to-value loans is prompting questions about resilience under adverse conditions.
Bank officials say they are monitoring portfolios and applying rigorous risk frameworks. "We’re passing our own test, and we’re comfortable with how we’re sitting there, so the constant monitoring the risk capital framework, will play a role," Citigroup Chief Financial Officer Gonzalo Luchetti said on an earnings call, noting regular stress-testing across a range of macroeconomic scenarios that includes private credit exposures.
The direct lending segment of private credit, estimated at $1.8 trillion, directly competes with broadly syndicated loans and traditional bank lending for financing private equity-backed transactions involving mid-sized and larger companies. That overlap has increased the attention paid to how private credit holdings might propagate stress into other parts of the financial system.
A string of negative headlines has intensified pressure on the sector this year. Investors and analysts have flagged two main vulnerabilities: portfolios concentrated in software that could be disrupted by artificial intelligence, and loans to small and middle-market companies that might face heightened default risk under stressed conditions. A recent report from Fitch Ratings found that the default rate among U.S. corporate borrowers of private credit rose to a record 9.2% in 2025, a data point that has heightened market anxiety.
Signs of stress are visible in borrowing costs too. Business development companies, the closed-end funds that make many private credit loans, are facing higher interest rates on their bank borrowings even as the historically elevated double-digit returns they generate on private lending compress.
At JPMorgan, Chief Financial Officer Jeremy Barnum said reporters were being told the bank is "watching the space very closely," and emphasized that portfolio diversification, underwriting practices and selective client relationships had left the firm well insulated. "But obviously, if you see a big credit cycle with significant increase in default rates, you’re going to see some losses across the whole system," Barnum added.
JPMorgan disclosed its private credit exposure totaled $50 billion in the first quarter.
Citigroup provided additional granularity in investor materials, citing $118 billion of exposure to non-bank financial institutions in the fourth quarter, of which $22 billion was categorized as private credit. The bank said much of that activity was concentrated with what it described as tier-1 asset managers and that the private credit portion of its portfolio had produced zero losses over the life of the holdings. Of the total $118 billion in loans, the bank said 76% were securitizations.
Wells Fargo reported that corporate debt finance - primarily private credit - accounted for $36.2 billion of loans in its portfolio, with sector concentrations of 19% in business services, 17% in software and 15% in healthcare.
Despite the growing size and complexity of private credit markets, several bank leaders rejected the idea that current strains are systemic. JPMorgan Chase Chief Executive Jamie Dimon said he did not view the risks as systemic. "I don’t think it’s systemic," he told analysts directly when asked.
Goldman Sachs Chief Executive David Solomon pointed to media-driven sentiment as a factor behind negative perceptions and flagged his firm’s institutional drawdown structures and diversified origination pipeline as reasons the bank can remain selective and patient in deploying capital.
Other financial executives echoed measured concern but stopped short of alarm. Wells Fargo Chief Financial Officer Mike Santomassimo said his firm was comfortable with the risk profile of its private credit book. BlackRock Chief Executive Larry Fink described demand for private credit as "structural," linking interest to banks' withdrawal from certain lending markets after the 2008 crisis and rising global indebtedness, and noted institutional demand was accelerating even as some retail investors pulled back. Fink added that wider market spreads are a near-term headwind for some providers but could play to BlackRock’s competitive strengths.
Insurer MetLife’s Chief Executive Michel Khalaf told attendees at an economic summit that while there may be "some cracks" appearing in the private credit landscape, he did not see evidence of an impending bursting bubble.
The broader picture for private credit remains mixed: growing allocations from institutions and strong historical returns have boosted the asset class’ prominence, but declining liquidity, valuation opacity and pockets of higher default rates are prompting banks and institutional investors to intensify surveillance and conservative underwriting. For now, major banks maintain they are actively testing and monitoring their positions and that diversification and underwriting discipline remain central to their risk control posture.
Summary
Major U.S. banks report significant financing connections to private credit and say they are stress-testing and closely monitoring those portfolios amid headlines about AI disruption, investor outflows and rising defaults in the segment. While executives describe comfort with the current exposures - citing diversification, selective underwriting and institutional client structures - market indicators such as rising default rates and higher borrowing costs for private credit funds are elevating scrutiny.
Key Points
- Private credit has become a $3.5 trillion market, with the $1.8 trillion direct lending segment competing directly with syndicated loans and bank lending for private equity-backed deals.
- Three of the six largest U.S. banks disclosed about $108 billion in financing exposure to private credit or related loans during quarterly reports; individual disclosures include $50 billion at JPMorgan, $118 billion in non-bank financial institution exposure at Citigroup (with $22 billion in private credit) and $36.2 billion in corporate debt finance at Wells Fargo.
- Industry leaders emphasize ongoing stress-testing, portfolio diversification and underwriting discipline as key mitigants while watching for potential spillovers if default rates continue to climb.
Risks and Uncertainties
- Rising defaults: A reported record U.S. private credit corporate borrower default rate of 9.2% in 2025 indicates higher credit stress that could affect lenders and fund managers, particularly in middle-market exposures.
- Sector concentration and AI disruption: Portfolios heavy in software or other sectors vulnerable to AI-driven change may face elevated performance risk if those industries undergo rapid structural shifts.
- Liquidity and funding pressure for private credit vehicles: Business development companies and other fund structures are experiencing higher bank borrowing costs and tighter spreads, which could compress returns and strain some providers.