Banks are owed $349B by private credit funds that may not be collecting cash from borrowers
Federal Reserve data show US-domiciled private credit vehicles owed banks $349 billion at the end of 2025, linking banks more directly to a sector holding over $2.6 trillion in assets. Meanwhile, payment-in-kind interest—added to loan balances instead of paid in cash—rose to about 10% of BDC loans by early 2026, from 6% in 2022. Funds may therefore receive less cash from borrowers even as their bank creditors still require payment. Collateral and senior claims protect banks, but falling valuations or financing demands could force funds to use reserves, sell assets or reduce lending, potentially affecting borrowers and broader markets. The piece also describes a UK regulatory inquiry into Barclays’ capital treatment of private-credit-linked swaps; Barclays says its treatment complies with requirements.
