The sudden collapse last fall of a series of U.S. companies backed by private credit has thrust an opaque, fast-growing corner of Wall Street lending into the spotlight.
Private credit, also known as direct lending, is a general term for loans made by non-bank institutions. The practice has been around for decades, but gained popularity after regulations following the 2008 financial crisis discouraged banks from serving riskier borrowers.
That growth (from $3.4 trillion in 2025 to an estimated $4.9 trillion by 2029) and the September bankruptcies of auto industry companies Tricolor and First Brands have emboldened some prominent Wall Street figures to sound the alarm about this asset class.
JPMorgan Chase CEO Jamie Dimon warned in October that credit problems are rarely isolated: “When you see one roach, there are probably more.” A month later, billionaire bond investor Jeffrey Gundlach accused private lenders of making “junk loans” and predicted that the next financial crisis will come from private credit.
While fears about private credit have eased in recent weeks in the absence of bankruptcies or more egregious losses disclosed by banks, they have not completely disappeared.
Companies more linked to the asset class, such as Blue Owl Capitalas well as alternative asset giants black stone and kkrThey are still trading well below their recent highs.
The rise of private credit
Private credit is “lightly regulated, less transparent, opaque and growing very quickly, which doesn't necessarily mean there is a problem in the financial system, but it is a necessary condition for there to be one,” Moody's Analytics chief economist Mark Zandi said in an interview.
The drivers of private credit, such as Apollo Co-founder Marc Rowan has said the rise in private credit has boosted American economic growth by filling the gap left by banks, provided good returns for investors and made the overall financial system more resilient.
Large investors, including pension and insurance companies with long-term liabilities, are seen as better sources of capital for multi-year corporate loans than banks funded by short-term deposits, which can be volatile, private credit traders told CNBC.
But concerns about private credit – which tend to come from the sector's public debt competitors – are understandable given its attributes.
After all, it is the asset managers who make private credit loans who value them, and they may be motivated to delay recognizing potential borrower problems.
“The double-edged sword of private credit” is that lenders have “really strong incentives to monitor for problems,” said Duke Law professor Elisabeth de Fontenay.
“But by the same token… they actually have incentives to try to disguise the risk, if they think or hope that there might be some way to avoid it in the future,” he said.
De Fontenay, who has studied the impact of private equity and debt on American businesses, said his biggest concern is that it is difficult to know whether private lenders are accurately rating their loans, he said.
“This is an extraordinarily large market that reaches more and more companies, but it is not a public market,” he said. “We are not entirely sure that the assessments are correct.”
In the November collapse of home improvement company Renovo, for example, black rock and other private lenders considered their debt worth 100 cents on the dollar until shortly before reducing it to zero.
Defaults among private loans are expected to rise this year, especially as signs of stress emerge among less creditworthy borrowers, according to a report from ratings agency Kroll Bond.
And private credit borrowers are increasingly relying on in-kind payment options to avoid defaulting on loans, according to Bloomberg, which cited valuation firm Lincoln International and its own data analysis.
Ironically, although they are competitors, part of the private credit boom has been financed by the banks themselves.
Financial enemies
After the investment bank JefferiesJPMorgan and Fifth Third After learning about losses related to bankruptcies in the automobile industry in the fall, investors learned about the scope of this form of lending. Bank lending to non-depository financial institutions, or NDFIs, reached $1.14 trillion last year, according to the Federal Reserve Bank of St. Louis.
On Jan. 13, JPMorgan first disclosed its lending to nonbank financial companies as part of its fourth-quarter earnings presentation. The category tripled to about $160 billion in loans in 2025, from about $50 billion in 2018.
Banks are now “back in the game” because deregulation under the Trump administration will free up capital so they can expand lending, Moody's Zandi said. That, combined with new entrants into private credit, could lead to lower standards for loan underwriting, he said.
“Now you're seeing a lot of competition for the same type of loan,” Zandi said. “If history is any guide, that's concerning… because it likely suggests weakening underwriting and ultimately greater credit issues down the road.”
While neither Zandi nor de Fontenay said they saw an imminent collapse in the sector, as private credit continues to grow, so will its importance to the US financial system.
When banks experience turmoil over loans they made, there is a regulatory playbook in place, but future problems in the private sector could be more difficult to resolve, according to de Fontenay.
“It raises broader questions from the perspective of the security and robustness of the overall system,” de Fontenay said. “Are we going to know enough to know when there are signs of trouble before it actually happens?”
