Nonbank finance offers new sources of funding and investment exposure, but growth brings questions about valuation, leverage and the availability of cash during stress.
A larger part of the system
Financing increasingly takes place outside traditional bank balance sheets. The Financial Stability Board reports that nonbank financial intermediation assets reached $256.8 trillion in 2024, representing 51% of global financial assets across its monitored jurisdictions. The sector expanded by 9.4% that year, compared with 4.7% growth for banking. These figures encompass a broad set of nonbank institutions, not private credit alone. The scale nevertheless illustrates why investors and regulators pay increasing attention to this part of the financial system. [1]
What private credit changes
Direct lending can provide companies with financing tailored to their needs, while offering investors access to exposures that are less available in public bond markets. But less frequent trading does not eliminate underlying economic risk. Loans may be difficult to sell quickly, valuation inputs can be less observable and borrower performance can deteriorate as financing costs change. An investor should therefore distinguish an asset’s reported valuation stability from its actual ability to generate cash when needed. [2] [3]
Liquidity is the key question
The IMF’s October 2026 Global Financial Stability Report warns that contingent funding commitments and rising leverage can intensify pressure in private credit during difficult conditions. Some lending vehicles have promised capital to borrowers that may draw on it precisely when other funding sources contract. The Reserve Bank of Australia’s October review likewise describes heightened scrutiny of underwriting, valuations and redemption arrangements following episodes of stress. These observations do not make every private-credit strategy equally risky; vehicle structure and asset quality matter. [3] [4]
Connections can spread shocks
Private funds do not operate independently of banks and public markets. Banks may provide credit lines, financing or other services to nonbank lenders; institutional portfolios may hold both public and private assets; and stressed investors may need to raise cash from holdings they can sell most easily. The FSB has called for more effective monitoring of nonbank leverage because of its potential to transmit market disruption. [2] [1]
A due-diligence framework
Before allocating capital, investors can ask how underlying loans are valued, how often independent marks are obtained, whether a fund promises redemptions more frequently than assets can be sold, and what happens when borrowers draw on unfunded commitments. Fees, seniority, covenant protection, sector concentration and manager experience also affect potential outcomes. A thoughtful allocation starts with matching the investment’s liquidity terms to the investor’s own cash needs rather than focusing only on headline yield. [4] [3]
Long-term significance
The continued growth of nonbank finance may broaden funding options for the real economy. Its durability, however, depends on transparent risk reporting and structures that can withstand a downturn. For institutional and sophisticated investors, the central question is increasingly whether the compensation for illiquidity is sufficient given the actual terms and risks of the investment. [1] [2]
References
1. Financial Stability Board, Global Monitoring of Nonbank Finance, December 2025. Source link
2. Financial Stability Board, Leverage in Nonbank Financial Intermediation, July 2025. Source link
3. IMF, Global Financial Stability Report, October 2026. Source link
4. Reserve Bank of Australia, Financial Stability Review, October 2026. Source link