July 29, 2026MFA Report
Primer: Collective investment trusts
All Industry Research
New research: Bank-private credit links show no increase in systemic vulnerability
New research from the Committee on Capital Markets Regulation examines whether bank lending to private credit funds increases systemic risk. The study finds that greater private credit exposure is not associated with greater systemic vulnerability. Banks’ direct lending to private credit funds remains small relative to bank balance sheets, capital, and liquidity, giving banks substantial capacity to absorb potential losses even under severe hypothetical stress scenarios.
Key findings:
01
Greater private credit exposure is not associated with greater systemic vulnerability.
02
Bank exposure to private credit is small relative to bank capital and liquidity.
03
Banks have substantial capacity to absorb even severe hypothetical losses.
01 / SYSTEMIC RISK
Greater exposure is not associated with greater systemic risk
The Committee finds no statistically significant relationship between bank private credit exposure and two established measures of systemic risk.
The study looked at how much a bank’s stock price is expected to fall during severe market-wide stress (MES), and how much a bank’s stock price fluctuates over time (equity volatility). Banks with greater private credit exposure did not show greater vulnerability under either measure.
Marginal Expected Shortfall (MES)
Expected stock-price decline during severe market-wide stress.
Equity volatility
How much a bank’s stock price fluctuates over time.
02 / BANK EXPOSURE
Bank exposure is small relative to bank resources
Bank lending to private credit funds represents a small share of banks’ balance sheets and the resources they have available to withstand stress. In 2025, direct lending to private credit funds equaled just 0.42% of total bank assets and 4.58% of Common Equity Tier 1 (CET1) capital—the core capital banks use to absorb losses. Banks also have substantial liquidity relative to their private credit exposure. Private credit lending represented just 1.77% of banks’ liquid assets. This indicates that these exposures are small relative to the resources banks have available to meet cash needs.
Direct lending to private credit funds, 2025
| Share of | All banks | Large banks |
|---|---|---|
| Total assets | 0.42% | 0.66% |
| CET1 capital | 4.58% | 7.80% |
| Liquid assets | 1.77% | 2.14% |
Source: Committee on Capital Markets Regulation.
For large banks, the corresponding figures are slightly higher—0.66% of assets, 7.80% of CET1, and 2.14% of liquid assets—but remain modest relative to their capital and liquidity.
03 / STRESS SCENARIO
Banks can absorb severe hypothetical losses
The study finds that banks retain substantial capital and liquidity even under extreme hypothetical stress scenarios. The Committee tests scenarios in which every bank loan to a private credit fund defaults and banks lose 75% of the value of those defaulted loans. Even under this scenario, banks would retain 96.56% of CET1 capital. Large banks would retain 94.15%.
Extreme hypothetical scenario
Substantial capital remains
Every bank loan to a private credit fund defaults,
and banks lose 75% of the value of those loans.
96.56%
CET1 capital retained · All banks
94.15%
CET1 capital retained · Large banks
Source: Committee on Capital Markets Regulation.
Deliberately extreme and unlikely stress assumptions.
The study also tests what would happen if private credit funds drew all available bank commitments at once. Those draws would equal only 1.77% of banks’ liquid assets, or 2.14% for large banks.
The results indicate that the direct lending channel would represent a relatively limited claim on banks’ capital and liquidity, even under these deliberately extreme and unlikely scenarios.
The Bottom Line
The research shows that bank lending to private credit funds is a limited source of risk to the banking system. Direct exposure remains small relative to bank capital and liquidity; banks retain substantial resources even under severe hypothetical stress, and greater exposure is not associated with greater systemic vulnerability in the study’s market-based tests.
These findings are consistent with a growing body of regulatory and academic research on private credit and financial stability. The Federal Reserve’s 2025 stress testing found that banks remained well capitalized even under severe credit and liquidity shocks involving nonbank financial institutions, including private credit.1 Other academic research has found limited risks of fire sales and contagion from direct lending.2 More recent research also finds that private credit can strengthen financial-system resilience by providing financing when banks and syndicated loan markets pull back.3
