The Federal Reserve is monitoring a recent slowdown in the private credit market, a sector that has experienced substantial growth in recent years. While not a collapse, the market has shown signs of strain in the last few weeks, prompting increased scrutiny from regulators.
Private credit, lending by non-bank financial institutions such as business development companies (BDCs) and other investment vehicles, has grown rapidly, reaching approximately $1 trillion in the United States by 2023, according to the Federal Reserve Bank of Boston. This represents an increase from $46 billion in 2000, with a significant acceleration after 2019. The market now approaches the lending volume of traditional sources like commercial and industrial loans from banks, broadly syndicated loans, and high-yield bonds.
A key characteristic of private credit is its indirect funding through bank credit, meaning banks are typically not directly involved in underwriting or issuing these loans. The lending ranges from direct loans to businesses to the purchase of distressed debt. According to Moody’s, US banks’ exposure to private credit through loans to non-depository financial institutions has neared $300 billion, outpacing all other bank lending activities since 2016.
Public and private pension funds also have a significant stake in private credit, holding approximately 31 percent, or $307 billion, of aggregate private credit fund assets as of the end of 2021, according to data analyzed by the Federal Reserve.
The Federal Reserve is assessing how private credit interacts with its monetary policy, prudential supervision, and financial stability objectives. The Boston Fed published a report in May 2025 examining whether the growth of private credit poses a risk to financial system stability. The report noted that the views expressed within are solely those of the authors and do not necessarily represent the views of the Federal Reserve Bank of Boston or the Federal Reserve System.
The New York Fed recently published an article outlining the basics of private credit and its recent growth, as well as the role of nonbank financial institutions (NBFIs) within the private credit ecosystem. The Fed has not yet publicly commented on the recent market slowdown.
