(The Wall Street Journal, Telis Demos, April 2, 2026)
Banks are under pressure amid fears of contagion from losses in private credit, even if they prove sufficiently insulated from a broad collapse. Lending to non-bank companies, particularly private funds that have seen a sharp rise in redemptions, has reached about $1.9 trillion, equivalent to 14% of all bank loans, up from $1.1 trillion three years ago.
Among the six largest American banks, JPMorgan Chase reported nearly $240 billion in loans to non-depository financial institutions in the fourth quarter, while Wells Fargo holds the largest amount in the “business credit intermediaries” subcategory with $71 billion. Bank of America and JPMorgan also exceed $90 billion if other categories are included. Shares of these banks have underperformed the KBW Nasdaq Bank index this year.
Beyond the risk of direct losses, banks risk losing an important revenue growth driver: financing private credit funds has fueled trading units, while buyouts financed with private debt generate advisory fees. If ongoing net redemptions force some funds to downsize or sell loans at liquidation prices, financing costs would rise and new activity would slow, hitting bank revenues.
Growing Exposure to Private Credit
“Lending to non-bank companies, or so-called non-depository financial institutions, has grown to about $1.9 trillion from about $1.1 trillion three years ago. This now represents about 14% of all bank loans.”
Main Exposures of Major Banks
“Among the six largest American banks, JPMorgan Chase reported the largest amount of NDFI loans in the fourth quarter, at nearly $240 billion. In the business-credit-intermediaries subcategory, Wells Fargo reported the largest loan amount, at $71 billion. JPMorgan reported $27 billion in this category. Including other NDFI loans, Wells, Bank of America, and JPMorgan’s lending in these two categories exceeded $90 billion in the fourth quarter.”
Risk Beyond Direct Losses
“Credit losses are not the only downside scenario. The fund financing business has been a growth engine for banks’ trading units. And buyouts financed with private debt drive advisory fees. If ongoing net investor redemptions force some funds to downsize or sell loans at liquidation prices, this could raise financing costs across the market and slow new activity, impacting banks’ revenues.”
Stock Market Reaction
“Bank shares have underperformed the market. The KBW Nasdaq Bank index is down about 5%, compared to about a 4% decline in the S&P 500 so far this year. Wells Fargo is down nearly 14% year-to-date, while Bank of America is down about 10% and JPMorgan about 8%.”
Banks Are Doomed Either Way
“Banks can be doomed by nervous investors if they engage with private credit, and doomed if they don’t.”
(Excerpt from Giuseppe Liturri’s newsletter)
