FSB warns the near-$2 trillion private credit market poses systemic risks as rising defaults, retail participation, and bank interconnectedness converge

The Financial Stability Board (FSB) — the international body that coordinates financial regulation across G20 economies — published its 'Vulnerabilities in Private Credit' report on 6 May 2026, issuing its most detailed warning yet on the systemic risks embedded in the fast-growing private credit sector. Private credit — typically direct lending to mid-sized companies by non-bank lenders — is valued by the FSB at between $1.5 trillion and $2 trillion using 2024 data, though the Alternative Investment Management Association puts the figure higher at $3.5 trillion. The FSB flagged several converging stress points: rising default rates (with broader measures including selective defaults and distressed exchanges presenting a more concerning picture than headline figures), a lack of transparency that hampers regulators and investors, and deepening interconnections between private credit funds, banks, insurers, and private equity firms. The report specifically identified the 'retailisation' of private credit — the marketing of private credit products to wealthy retail investors — as a potential amplifier of risk. Retail investors' share of assets under management in the sector has climbed from near zero to approximately 13% over the past decade. Open-ended and 'semi-liquid' vehicles (funds that offer periodic redemptions while holding long-dated, illiquid assets) create a liquidity mismatch that was less concerning when the sector was the preserve of institutional investors. Concentration risk is a further concern: five large asset management groups account for roughly one-third of aggregate loan commitments across private credit and private equity combined. Insurers are also increasingly exposed, with the FSB estimating around of life insurer portfolios now in private credit. , , , and have all limited retail investor redemptions in recent weeks. was cited as the latest bank to report unexpected losses linked to a UK private credit exposure — a $400 million charge connected to the collapse of UK-based mortgage lender Market Financial Solutions.