Banks Disclose $128B Exposure to Private Credit

Four large U.S. banks disclosed more than $128 billion in exposure to private credit on their first-quarter presentations. An analysis of 53 publicly traded business development companies showed 28 of those firms reported losses in the first quarter of 2026 and average profit across the group fell to negative $7.6 million from a $26 million profit a year earlier.

Business development companies, or BDCs, are publicly traded funds that make private loans to mid-sized companies and return most income to shareholders as dividends. The standardized review found loan markdowns and higher borrowing costs were the main drivers of the decline in reported profits.

Payment-in-kind interest, where borrowers add interest to loan principal instead of paying cash, made up an average of 8.1% of BDC interest and dividend income in 2025, about twice its share before 2020. PIK preserves short-term borrower liquidity while increasing the amount owed later.

At 14 BDCs with full joint-venture disclosures, off-balance-sheet borrowing rose 80% during 2025 and a further 14% in the first quarter of 2026. Special-purpose vehicles and joint ventures can move debt outside headline balance sheets and increase measured leverage when their obligations are consolidated.

JPMorgan reported roughly $50 billion of private credit exposure. Wells Fargo’s “financials except banks” portfolio totaled $210.2 billion and included $36.2 billion in direct private credit exposure. Combined disclosures by JPMorgan, Citigroup, Bank of America and Wells Fargo exceeded $128 billion. Broader industry data and commercial estimates indicate drawn and undrawn bank lines to private credit lenders could be substantially higher.

Banks provide financing to private lenders through subscription facilities, revolving credit lines, net asset value loans and warehouse financing. Those funding channels connect bank balance sheets to the private credit market.

Market activity showed a pullback in new lending. Direct-lending volume in the U.S. fell about 55% quarter over quarter, from $74.67 billion to $33.59 billion. Private debt issuance through May 2026 totaled about $87.2 billion, down roughly 24.6% from the same period in 2025. Investors requested more than $20.8 billion in redemptions from the largest semi-liquid private credit funds in the first quarter of 2026; managers accepted about half of those requests and capped withdrawals at 5% of net asset value for many vehicles.

JPMorgan CEO Jamie Dimon told analysts in April that the roughly $1.8 trillion private credit market did not appear to pose a systemic risk, saying, “you have to have very large losses in private credit before, at least it looks like, banks are going to get hit.” Executives at Citigroup, Bank of America and Wells Fargo described their exposures as “comfortable” in recent comments.

International regulators and some central bankers have warned that hidden or layered leverage can amplify losses when credit cycles turn. The losses recorded by many publicly traded BDCs have been absorbed so far without broad market disruption. Many funds use locked-up capital that limits redemption pressure.