FSB Flags AI‑Driven Private Credit Surge as Potential Loss Generator

The Financial Stability Board (FSB) released a report highlighting the growing concentration of private credit in AI, healthcare, services and tech. In 2025, AI firms accounted for more than one‑third of all private credit transactions, up from 17% in the previous five years. Private credit funds, which raise money from investors rather than rely on bank deposits, have become a key source of financing for AI‑driven datacentres.

Key facts: - AI‑related private credit deals rose to over 33% of the market in 2025, a near‑doubling of the share seen in the 2019‑2024 period. - The FSB warned that a sharp correction in asset values could produce “sizeable” credit losses for investors. - A shortfall in electricity supply – essential for datacentre construction and operation – could delay or cancel projects, triggering defaults. - Recent private‑credit‑backed failures at US auto firms Tricolor (ticker: N/A) and First Brands (ticker: N/A) led to fraud claims and losses for banks JPMorgan (JPM), Barclays (BARC.L), UBS (UBS) and Jefferies (JEF). - Banks’ exposure to private credit has risen, with some funds seeing multibillion‑pound withdrawals and imposing caps on redemptions.

What it means Private credit lenders typically accept lower credit scores and larger debt loads than traditional banks, increasing the sector’s vulnerability to industry‑specific shocks. The FSB’s warning underscores the risk that a supply‑side constraint – such as a national electricity shortfall – could stall AI datacentre roll‑outs, leaving borrowers unable to service loans. An oversupply of datacentre capacity could also depress AI company valuations, reducing expected returns for investors.

Traditional banks are now intertwined with private credit through direct lending to funds, financing riskier portfolios, and co‑investing in deals. The Tricolor and First Brands collapses illustrate how bank losses can cascade from opaque private‑credit exposures. JPMorgan reported a $1.2 billion hit, Barclays a $900 million write‑down, UBS $750 million, and Jefferies $600 million, reflecting the depth of integration.

Investors should monitor electricity market developments, datacentre construction pipelines, and any regulatory moves aimed at increasing transparency in private credit reporting. The next FSB update, due later this year, will reveal whether tighter oversight curbs the sector’s risk build‑up.