Wall Street monitors private credit risk as AI disruption, outflows cause concern.

Wall Street executives said they were stress‑testing or monitoring ⁠private ⁠credit portfolios as the asset class comes under scrutiny, but said ⁠they were comfortable with their exposure.

The comments came after three of the six biggest U.S. lenders disclosed about $108 billion financing exposure to private credit or ​related loans during their quarterly earnings. Private credit has been in the spotlight after AI risks, fund outflows and fears of credit stress hammer alternative asset managers’ stocks. 

The $3.5 trillion asset class has drawn in pension funds, insurers and wealthy ‌individuals with the promise of steady, higher yields, but ‌its rapid expansion into less liquid, harder-to-value loans has also raised concerns about how it would hold up under stress.

The $1.8 trillion direct lending segment, which is part of private credit, competes directly against the broadly syndicated loans and ⁠traditional bank lending for ⁠financing of mid-sized and large private equity-backed deals.

“We’re passing our own test, and we’re comfortable with how we’re sitting there, so ​the constant monitoring the risk capital framework, will play a role,” Citigroup CFO Gonzalo Luchetti said on an earnings call. He said the bank was constantly stress-testing its portfolios, including in the private credit space, for a range of macroeconomic environments. 

A slew of negative headlines has hurt the private credit sector this year, with concerns mounting that software portfolios are vulnerable to AI disruption and that loans to small, middle-market companies could come under pressure.

The default rate among U.S. corporate borrowers ​of private credit rose to a record 9.2% in 2025, according to a report last month by credit rating agency Fitch Ratings.

Other signs of stress have also emerged. Private credit funds, known ⁠as ⁠business development companies (BDCs), are getting hit with ⁠higher rates on their bank borrowings even as ​the historically high double-digit returns they make on private lending shrink.

JPMorgan’s Chief Financial Officer Jeremy Barnum on a call with reporters said that the bank was “watching the space very ​closely,” adding that JPMorgan was well protected thanks to portfolio diversification, ⁠underwriting and client selection. 

“But obviously, if you see a big credit cycle with significant increase in default rates, you’re going to see some losses across the whole system,” Barnum said.