The Financial Stability Board (FSB) has issued a cautionary statement regarding the potential risks posed by the private credit sector’s involvement in the artificial intelligence (AI) boom. The global regulatory body, which oversees financial authorities such as central banks across 24 nations, highlighted in a recent report that industries like healthcare, services, and technology are now the primary recipients of private credit, with AI companies being significant participants. These companies have increasingly sought private lenders to finance essential infrastructure, including data centers. The report reveals that AI firms constituted over a third of private credit deals in 2025, a noticeable rise from 17% in the preceding five years.
The FSB warns of the dangers associated with this concentrated lending to specific sectors, noting that it could expose private credit funds to unique risks and heighten vulnerability to industry-specific or regional economic shocks. It particularly points out that a sudden correction in asset valuations, which have been climbing swiftly, might result in substantial credit losses for private credit investors. A significant disruption in the electricity supply, crucial for building and maintaining data centers, could potentially trigger such a correction by causing project delays or cancellations.
Moreover, the FSB indicates that AI company valuations could suffer if investments lead to an oversupply of data centers, outstripping the demand for AI services, which would result in returns falling short of investor expectations. This concern is compounded by the recent trend of large-scale withdrawals from some private credit funds, sparked by worries over the precarious nature of loans arranged outside the conventional banking system. These funds, which operate using investor money rather than customer deposits, have reacted by limiting client withdrawals.
Despite some advocates asserting that private credit lenders possess the expertise to manage risks effectively and offer tailored loan solutions, the FSB notes that borrowers in this sector often have lower credit scores and higher debt levels compared to those securing loans from traditional banks. Furthermore, traditional banks are increasingly entwined with the private credit market, either by providing direct loans to private credit funds, supporting riskier fund portfolios, or lending to firms that are also borrowing from private credit entities.
Additionally, an increasing number of banks are forming partnerships with asset managers to engage in private credit transactions. This growing entanglement underscores the significance of closely monitoring the sector to prevent potential financial instability arising from these evolving lending practices.