Banks report $128B private‑credit exposure as BDC losses rise

JPMorgan, Citigroup, Bank of America and Wells Fargo disclosed more than $128 billion of exposure to private‑credit lenders in first‑quarter presentations, while 28 of 53 publicly traded business development companies recorded losses in Q1 2026. Average profit across those 53 BDCs moved from a $26 million gain in Q1 2025 to a $7.6 million loss in Q1 2026.

Business development companies are publicly listed funds that make loans to mid‑sized firms and return most income to shareholders as dividends. A standardized review of BDC financials showed the rise in loss‑making firms was driven mainly by loan markdowns and higher borrowing costs. The standardized figures include debt expenses and changes in loan valuations that some BDCs do not emphasize in their headline metrics.

Non‑cash interest payments, known as payment‑in‑kind or PIK, accounted for 8.1% of BDC interest and dividend income in 2025, about twice the share seen before 2020. PIK lets borrowers add unpaid interest to the loan balance instead of paying cash.

At 14 BDCs with full joint‑venture disclosures, off‑balance‑sheet borrowing increased about 80% in 2025 and a further 14% in Q1 2026. Those joint ventures and special‑purpose vehicles move debt outside headline balance sheets.

JPMorgan reported roughly $50 billion of private‑credit exposure. Wells Fargo’s “financials except banks” portfolio was listed at $210.2 billion and includes $36.2 billion of direct private‑credit exposure. Combined disclosures from the four largest U.S. banks exceed $128 billion. Available Financial Stability Board data capture about $220 billion in drawn and undrawn bank lines to private‑credit lenders across member jurisdictions.

Federal Reserve regional research has documented that banks fund private‑credit managers through subscription facilities, revolving credit lines, net asset value loans and warehouse financing. Those financing structures link losses on private loans back to the banks that provided the funding.

Direct‑lending volume in the U.S. fell about 55% quarter‑over‑quarter, from $74.67 billion to $33.59 billion. Private debt issuance through May 2026 totaled roughly $87.2 billion, down nearly 25% from the same period in 2025. Investors requested more than $20.8 billion in redemptions from the largest semi‑liquid private‑credit funds in Q1 2026; managers fulfilled about half those requests and often capped withdrawals at 5% of net asset value.

JPMorgan CEO Jamie Dimon told analysts in April that ‘‘You have to have very large losses in private credit before, at least it looks like, banks are going to get hit.’’ Executives at Citigroup, Bank of America and Wells Fargo described their own private‑credit exposures as comfortable.

Regulatory bodies have warned that hidden or layered leverage can amplify losses in a downturn. They identified possible stress triggers including a major bank materially increasing loss provisions tied to private credit, a large fund suspending withdrawals rather than imposing caps, multiple lenders recording wide differences in loan marks, or banks reducing or not renewing financing lines to private‑credit managers.

To date, losses at BDCs and related strains have not produced broad market disruption and many losses have been absorbed without immediate spillovers.