The $2.5 trillion private credit market is reshaping corporate lending—and blurring the lines between banks and nonbank financial institutions (NBFIs). Once focused on “filling the gap” between bank loans and public markets, private credit has expanded into bigger, riskier deals. As Charles Cohen of the International Monetary Fund (IMF) told ProSight, “Private credit is potential competition but also potential partners to banks.”
Here are four takeaways for risk and strategy teams:
Private Credit Plays by Different Rules
Unlike banks, private credit funds have “locked-up capital,” Cohen explained. They deploy investor capital and return it when deals are done—avoiding the deposit funding and run-risk that banks face. They also “have built very strong relationships with the borrowers and often will take upside in deals—more like equity financing.” That structure and flexibility make them formidable competitors for high-value and syndicated loans.
Interconnectedness Brings Spillover Risk
According to the IMF’s October 2025 Global Financial Stability Report, U.S. and European banks have $4.5 trillion in exposure to nonbanks, including private credit funds. Cohen warned that this interconnection creates “spillover” risk: stress in private markets can move into banks through the loans and credit lines they provide to private credit firms. In times of market stress, “some of these nonbanks may be drawing lines of credit from the banking system, which would place liquidity strains on the banks.” Banks have already lent about $300 billion to private equity and private credit funds, underscoring the depth of these links.
Partnerships Are Growing—So Are the Stakes
As Cohen put it, “Clearly banks understand that this is a very important new space, and that they need to be aligned with players in this space.” In many large deals, banks provide senior leverage to private-credit portfolios—often a risk mitigant: “Since the leverage is senior, I think that provides some mitigants against losses for banks and makes them feel more protected. They can call for additional collateral from the funds if they must.”
Downturns Will Test the Model
But that protection hasn’t been tested. Private credit “hasn’t really seen its performance in a serious correction,” Cohen cautioned. “If a bear market happens, there is the potential under extreme scenarios that banks could see losses.”
The takeaway: partnerships between banks and private credit funds can be mutually profitable—but they also bind banks and private credit more tightly together. As Cohen noted, “Understanding the nature of the leverage that private credit firms are receiving, and how much cushion the banks have against a downturn in the private credit market, is critical.”
