Private credit funds owed banks $349 billion at end of 2025, Fed data shows

Fed data pulls bank lending to private credit into view

New Federal Reserve data shows how deeply banks still fund private credit, the business of making loans through investment funds rather than traditional banks. US-domiciled private credit vehicles owed banks $349 billion at the end of 2025.

At the same time, a growing share of borrowers are paying interest by adding it to their loan balance instead of sending cash. That creates a gap between the income funds report and the money they actually hold, a gap that analysts say could push stress into wider markets, including Bitcoin.

Key numbers

• US-domiciled private credit vehicles owed banks $349 billion at the end of 2025.
• Business development companies owed $181 billion, private debt funds owed $150 billion, and interval and tender-offer funds owed $18 billion.
• Private credit vehicles with a US footprint hold more than $2.6 trillion in assets, including about $1.5 trillion in private loans to US businesses.
• About 10% of BDC loans were using payment-in-kind interest by early 2026, up from roughly 6% in 2022.
• Barclays reported £15 billion in total private credit exposure, with about £1.5 billion in swaps now under regulatory scrutiny.

What the Fed's figures show

The Fed's Oct. 16 account of the market found that private credit vehicles with a US footprint hold more than $2.6 trillion in assets. That total includes foreign-based vehicles, equities, and other investments. Roughly $1.5 trillion of it consists of private loans to US businesses.

Within the US-domiciled group, business development companies, or BDCs, which are funds that lend to businesses, owed banks $181 billion. Private debt funds owed $150 billion. Interval and tender-offer funds, which let investors sell shares back only at limited times, owed $18 billion. The Fed notes these are fund liabilities, not bank losses or unused credit lines.

The Fed had previously classified some of these bank loans as lending to financial companies abroad. Correcting that makes the financing easier to track, though the data is not evidence that individual banks hid their exposure.

Banks lend to these funds in different ways. Some lend against the fund's investment assets. Others lend against investors' commitments to contribute capital. Banks also provide revolving credit lines that funds draw and repay as needed.

Fed researchers studying BDC financing found that five banks supplied roughly two-thirds of drawn bank lending in a 2012 to 2023 sample. BDCs rarely switched banking partners. The study also found banks charged BDCs a premium during periods of monetary tightening, compared with similarly rated borrowers at the same bank, even though BDC loans generally had seniority and collateral.

More borrowers are paying interest with IOUs

Boston Fed researchers examined filings from 168 BDCs covering nearly 890,000 loan observations. By early 2026, about 10% of BDC loans were actively using payment-in-kind interest, known as PIK. That is up from about 6% in 2022. The count excluded contractual options borrowers had not yet used.

PIK lets a business add interest to its outstanding debt instead of paying it in cash. The lender gets a legal claim to a larger repayment later. That flexibility is sometimes negotiated upfront so a company can spend more on operations. It can also let a struggling borrower keep servicing a loan without money it does not have.

The increase appeared across nearly every industry in the sample. Construction showed one of the largest jumps, from less than 5% of loans in 2022 to nearly 20% by early 2026. Borrowers with floating-rate loans also faced higher costs as benchmark rates rose over that period.

Not every PIK loan signals distress. But interest added to debt is not cash a fund can use to pay its own expenses or creditors. A fund's bank is not required to defer interest just because the fund's borrowers have done so.

Financing agreements can add pressure. Contracts may limit how much a fund borrows against eligible collateral. If loan values fall or assets stop qualifying, the fund may have to post more collateral or repay, even if its total assets still exceed its debts. Managers then face a choice between using reserves or selling investments that were not meant for a quick exit. Cutting new lending conserves cash but leaves businesses that expected to refinance searching for another lender. Funds that offer repurchase programs may also face investor withdrawals, though limits can slow the outflow. Listed BDC shares work differently, since a seller on an exchange is paid by another buyer and the company keeps its cash.

UK watchdog reviews a complaint about Barclays

The Financial Times reported on Oct. 19 that the UK's Prudential Regulation Authority was looking into an insider complaint about Barclays. The complaint concerns the bank's allocation of private credit-linked total return swaps to its trading book.

A total return swap is a derivative contract that transfers a loan's income, gains, and losses without transferring ownership. The distinction matters because whether an exposure sits in the banking book or the trading book determines which capital rules apply. Holding less capital against an exposure can improve the return on a transaction.

The PRA had already flagged this issue. In an April 2025 letter to bank finance chiefs, it said putting hard-to-sell assets into tradable form was not sufficient on its own to justify trading-book capital treatment.

Barclays told Reuters its treatment complied with accounting and regulatory capital requirements and was supported by internal governance and external advisers. The bank reported £15 billion in total private credit exposure, mostly in its banking book. The swaps in question referenced roughly £1.5 billion in underlying assets, with a current mark-to-market exposure of about £300 million.

What is confirmed and what is not

Confirmed by Fed data and research: the $349 billion in bank borrowing, its breakdown across fund types, the $2.6 trillion in total assets, the rise in PIK usage, and the concentration of BDC lending among five banks.

Reported but not independently confirmed: the details of the PRA's review of Barclays, which comes from a Financial Times report on an insider complaint. No regulator has said Barclays broke any rules, and the bank says its treatment complied with requirements.

The Bitcoin connection is a described risk channel, not an observed event. Bitcoin does not need to hold a private credit loan for stress to reach its market.

How the pressure could reach Bitcoin

Banks hold protections that fund investors do not, including collateral and priority when money is distributed. Those protections can keep a bad business loan from becoming a bank loss. But enforcing them can require a fund to produce cash before its borrowers are ready to pay.

When investors need cash, they can sell assets unrelated to the original loss. When lenders reduce financing, traders can be left with less money to maintain positions. That is the path by which private credit stress could spread into markets like Bitcoin, according to the analysis.

Sources

• CryptoSlate