Fed's Cook downplays systemic risks posed by private credit

• Key takeaway: Federal Reserve Gov. Lisa Cook said the central bank now has more data to assess developments in the private credit sector and that, so far, there is no indication of significant risk.
• Expert quote: "We still don't think that [private credit] is having a big effect on financial stability, but we still want to ascertain that." — Federal Reserve Gov. Lisa Cook
• What's at stake: Bank ties to the private credit sector have grown substantially over the past decade and are likely to continue growing as proposed changes to bank capital rules could make it more attractive for banks to finance or hold certain private credit-related assets. 

Federal Reserve Gov. Lisa Cook said Thursday that private credit so far does not pose an adverse risk to financial stability, but the potential risks of the growing market is something that makes her "sleep with one eye open."

Speaking at an event hosted by the Federal Reserve Bank of New York, Cook said data the central bank has analyzed for its semiannual financial stability report does not show that the burgeoning private credit sector poses additional risks to the financial system. She stressed, however, the importance of tracking how the market intersects with banks.

"We still don't think that [private credit] is having a big effect on financial stability, but we still want to ascertain that," Cook said. "And one way we become more transparent about that is to understand how the data intersects, especially with the banks we supervise."

Cook, who oversees financial stability on behalf of the Fed's board of governors, said that when the central bank first began monitoring private credit for its financial stability report, there was little information available because the market is "very opaque, not so transparent."

The central bank is now obtaining more data on private credit, giving policymakers a clearer picture of how the market affects the broader financial system, she said.

In its most recent financial stability report, published in May, the Fed included results from a Federal Reserve Bank of New York survey on market risks. Artificial intelligence and private credit were each cited by 50% of respondents as significant risks. Geopolitical risk ranked as the top concern, cited by more than 75% of respondents — up from 50% in its prior report released in November 2025.

"People who work on financial stability are very risk averse. We sleep with one eye open," Cook said. "If it's not this thing — hedge funds, private credit, [etc.] — it's something else, and we have to be adept at adapting to understanding what could be the source. It may not be the same source tomorrow as it is today."

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Cook's comments on how private credit intersects with banks come as banks' involvement in the market has grown over the past decade, although the full extent of those ties can be difficult to measure.

According to research published by the Federal Reserve Bank of Boston, bank lending commitments to business development companies, or BDCs, increased from about $10 billion in 2013 to more than $50 billion in 2025. The growth of private credit, combined with limited transparency around the market, has drawn increasing attention from regulators and lawmakers.

Banks' ties to private credit could deepen under several proposed changes to bank capital rules. Lower risk weights could make it more attractive for banks to finance or hold certain private credit-related assets, industry observers say.

One proposed change that industry experts say could increase banks' ties to private credit is a reduction in the minimum risk weight for certain senior securitization exposures from 20% to 15%. Proposed changes to the expanded risk-based approach, or ERBA, which would broadly change the capital treatment of bank exposures, could also create more room for banks to offer warehouse lines and other financing facilities to private credit funds.

If banks become more involved in private credit as a result of changes to capital rules, some stakeholders warn that greater interconnectedness could exacerbate risks, including concentration risk and liquidity shocks.