Banks' excessive dependence on private credit could trigger a new crisis, says IMF

The IMF has warned that U.S. and Eurozone banks hold about $4.5 trillion in exposure to hedge funds, private credit firms, and other non-bank financial institutions — roughly 9% of total global lending. This rapid growth outside the traditional banking system, the Fund said, poses new systemic risks that could magnify any market downturn.

Source Financail Times

A significant number of banks now have non-bank exposures exceeding their own capital, with some reaching over five times their Tier 1 equity buffers. The IMF highlighted the opacity of these relationships, noting that limited disclosure from non-bank lenders makes vulnerabilities harder to detect and regulate.

The Fund also cautioned that equity markets are about 10% overvalued, inflated by optimism around artificial intelligence. While the financial system has shown resilience, the IMF urged regulators to tighten oversight of hedge funds and private credit markets, warning that even a moderate downturn could trigger forced asset sales and liquidity shocks.