The Financial Stability Board (FSB) has issued a cautionary note regarding the private credit industry’s involvement in the artificial intelligence (AI) boom, suggesting that a sudden downturn could result in significant financial losses. The AI sector has become a prominent borrower of private credit, with companies increasingly relying on private lenders to finance essential infrastructure like datacentres. According to the FSB’s recent report, AI-related private credit deals surged to account for over a third of transactions in 2025, marking a substantial increase from 17% in the preceding five years.
The report highlights the risks associated with the concentrated lending to specific sectors such as healthcare, services, and technology, including AI. It warns that this concentration may expose private credit funds to unique risks and amplify their vulnerability to shocks specific to regions or industries. The FSB specifically points out that a rapid decline in asset valuations, which have been climbing swiftly, could inflict considerable credit losses on private credit investors.
A critical factor that could trigger these losses is any major shortfall in electricity supply, which is vital for the construction and operation of datacentres. Such a shortage could lead to delays or cancellations of AI-related projects, impacting valuations further. Additionally, the FSB notes that an oversupply of datacentres, if investments outpace the actual demand for AI, could result in lower returns than investors anticipate.
Concerns are mounting over the potentially risky loans facilitated by private credit firms, which function outside the traditional banking system by using investor money instead of customer deposits. These concerns have recently spurred a significant wave of withdrawals from some private credit funds, prompting certain funds to limit how much money clients can extract. While some proponents argue that private credit lenders possess superior capabilities to monitor risks and tailor loan arrangements, the FSB’s report points out that borrowers in this sector often have lower credit scores and higher debt levels compared to those seeking loans from conventional banks.
Traditional banks, however, are not immune to exposure to the private credit sector. They increasingly engage in direct lending to private credit funds, finance riskier fund portfolios, or provide loans to firms that are also borrowing from private credit entities. Furthermore, a growing number of banks are entering partnerships with asset managers to participate in private credit deals, thereby intertwining their fortunes with the outcomes of this burgeoning yet precarious sector.