The Financial Stability Board (FSB) has raised concerns over the private credit industry’s role in driving the artificial intelligence (AI) sector’s expansion, cautioning that a significant correction could result in substantial losses. A recent report by the global regulatory body, which encompasses financial authorities such as central banks across 24 nations, identifies healthcare, services, and tech as the primary consumers of private credit. Among them, AI companies are increasingly relying on private lenders to finance datacentres and other essential infrastructure. In 2025, AI ventures accounted for over a third of private credit agreements, a sharp increase from 17% over the previous five years. The FSB report highlighted that this concentration in specific sectors might subject private credit funds to unique risks and heighten vulnerability to regional or industry-specific disruptions.
The FSB expressed concerns that AI-related loans are particularly susceptible to a “sharp correction in asset valuations,” which have surged rapidly, potentially leading to significant credit losses for private credit investors. A notable trigger for such a correction could be a major shortage in electricity supply—a crucial element for the construction and operation of datacentres—resulting in project delays or cancellations. Additionally, the report warned that AI company valuations could suffer if investments lead to an oversupply of datacentres that surpasses demand, ultimately delivering lower-than-anticipated returns for investors.
This report adds to existing apprehensions regarding the risky nature of loans orchestrated by private credit firms, which operate outside the traditional regulated banking system. These firms lend to companies using investor capital instead of customer deposits or loans secured by those deposits. Such concerns have recently caused a significant withdrawal of funds from private credit investments, compelling some firms to limit the amount clients can withdraw. While proponents argue that private credit lenders are adept at managing risks and offering tailored loan arrangements, the FSB noted that borrowers from private credit sources typically exhibit lower credit scores and higher debt levels compared to those seeking loans from conventional banks.
Traditional banks, meanwhile, are becoming increasingly entangled with the private credit sector. This involvement includes direct lending to private credit funds, financing riskier fund portfolios, or lending to firms already borrowing from private credit companies. A growing number of banks are also forging partnerships with asset managers on private credit deals, reflecting the sector’s expanding influence on the broader financial landscape.