The Financial Stability Board (FSB) has raised concerns that the private credit industry’s significant role in supporting the AI boom might result in substantial losses if a sharp market correction occurs. In its latest report, the FSB highlights that the healthcare, services, and technology sectors, including AI companies, have become major borrowers of private credit. This trend has seen AI firms increasingly rely on private lenders to finance datacentres and other infrastructure projects, with AI-related deals making up more than a third of private credit agreements in 2025, a sharp increase from 17% over the previous five years.
The report warns that this concentrated lending in specific sectors could leave private credit funds vulnerable to unique risks or sector-specific economic shocks. A potential sharp decline in asset valuations, which have been rising quickly, poses a risk of considerable credit losses for private credit investors. The FSB suggests that such a decline could be triggered by disruptions in the supply of electricity, crucial for the construction and operation of datacentres, possibly causing project delays or cancellations.
Further risks to AI company valuations could emerge if investments result in an oversupply of datacentres, surpassing demand and leading to lower returns than anticipated. The FSB’s report underscores growing concerns about risky loans facilitated by private credit firms, which operate outside the traditional banking system by using investor funds rather than customer deposits or secured loans. These concerns have recently sparked a significant increase in withdrawals from private credit funds, prompting some to limit how much money clients can withdraw.
While proponents argue that private credit lenders are better positioned to manage risks and tailor loan arrangements, the FSB notes that borrowers from private credit sources generally have lower credit ratings and higher debt levels compared to those seeking loans from conventional banks. Despite this, traditional banks are becoming more involved in the private credit market by either lending directly to private credit funds, financing riskier portfolios, or partnering with asset managers on private credit ventures.