The explosive growth of the opaque private credit industry may be laying the groundwork for the next global financial crisis, according to a major new study involving researchers from Moody’s Analytics, the SEC, and the U.S. Treasury. As reported by the Financial Times, the report warns that private credit is now so deeply intertwined with banks and insurers that it could act as a “locus of contagion” during future market shocks.
The study, co-authored by Mark Zandi (Moody’s Analytics), Samim Ghamami (SEC), and former Treasury official Antonio Weiss, finds that the increasing interconnectedness of private credit funds with traditional financial institutions has created “new modes of systemic stress” that could amplify the impact of financial turmoil.
“These opaque structures are now embedded across the system,” the authors write, cautioning that the complex web of exposures between banks, insurers, and private credit funds could “disproportionately amplify a future financial crisis.”
Private credit — a sector that lends to higher-risk companies typically overlooked by banks — has surged in the wake of tighter post-2008 regulations. Unlike banks, these funds operate in the shadows, with looser oversight and limited disclosure, raising red flags among regulators and credit analysts alike.
Using stock performance data from business development companies (BDCs) as a proxy for the largely non-transparent private credit sector, the researchers found BDCs have become significantly more correlated with broader market stress during recent upheavals. This, they say, suggests a dangerous fragility in times of volatility.
“Today’s financial system no longer revolves solely around banks,” the report notes. “Instead, the system is more densely interconnected, with private credit, specialty finance firms, and insurers increasingly sharing credit exposure — often outside formal oversight.”
Critically, the authors point to growing involvement of traditional banks in the private credit ecosystem through structured partnerships, off-balance-sheet vehicles, and fund financing, which allow them to remain economically exposed to risky assets while sidestepping direct accountability.
That concern echoes a recent warning by the Boston Federal Reserve, which said such indirect exposure through private credit partnerships could open up new channels of systemic risk. Similarly, Fitch Ratings this week flagged the “evolving and largely untested” nature of private credit’s products and strategies, urging closer scrutiny.
While private credit proponents argue their funding model — built on longer-horizon capital rather than deposit-based lending — makes them more resilient, the Moody’s-backed study urges regulators to prioritize transparency and systemic risk oversight in this fast-expanding corner of finance.
“The goal is not to stifle innovation,” the report states, “but to ensure that private credit does not become a blind spot in the financial system — especially as its role in corporate finance and asset markets continues to grow.”
As regulators grapple with rising concerns about financial stability amid ongoing global economic uncertainty, this report adds new urgency to calls for greater public disclosure and regulatory oversight of non-bank credit giants.
