Economy
Fed's Cook: Private credit not a systemic threat yet, but data gaps remain
By Bear Creek Staff, . Bear Creek Capital Network.
Private credit does not currently appear to threaten financial stability, Federal Reserve Governor Lisa Cook said Thursday, but she made clear the Fed is watching the market closely because its limited transparency makes confident conclusions difficult. American Banker reported her remarks, which she delivered at a New York Fed event.
Cook, who carries responsibility for financial stability oversight on the Fed's board of governors, said the central bank's semiannual financial stability report has not surfaced evidence that private credit is generating outsized systemic risk. Her concern is less about what the data shows than about what it cannot yet show. "We still don't think that [private credit] is having a big effect on financial stability, but we still want to ascertain that," she said. "And one way we become more transparent about that is to understand how the data intersects, especially with the banks we supervise."
The Fed's latest financial stability report, out in May, carried findings from a survey run by the Federal Reserve Bank of New York, where private credit and artificial intelligence were each flagged as significant risks by half of respondents. Geopolitical risk led the field, cited by more than three-quarters of respondents, up from roughly half in the prior November 2025 report, the publication noted.
The bank-to-private-credit connection is where the near-term risk picture gets more complicated. Federal Reserve Bank of Boston research, cited in the same report, found that lending commitments made by banks to business development companies climbed from roughly $10 billion in 2013 and topped $50 billion in 2025. That growth has drawn attention from regulators and lawmakers, but the full scope of the ties remains hard to measure.
Pending changes to bank capital rules could expand those ties further. The report says regulators have proposed cutting the floor on risk weights for some senior securitization exposures to 15%, down from 20%, a change industry observers say would make it more attractive for banks to hold or finance private credit-related assets. Proposed revisions to the expanded risk-based approach, which governs capital treatment across a broad range of bank exposures, could likewise give banks additional scope to provide warehouse lines and other forms of financing to private credit funds.
If those rule changes go through, the interconnectedness Cook is already monitoring would deepen. Some stakeholders, the report says, warn that greater bank involvement could amplify concentration risk and make liquidity shocks harder to contain.
Cook's framing is worth noting on its own terms. She described financial stability professionals as constitutionally cautious, saying "we sleep with one eye open," and acknowledged that the source of the next stress event may not be the one currently under scrutiny. That is an honest description of the limits of surveillance, not a reassurance. The Fed is getting more data on private credit than it had when it first began tracking the sector, but Cook's own comments suggest the picture is still incomplete.
What remains unresolved is how quickly the capital rule changes will advance, and whether the Fed's data-gathering will keep pace with the market's growth. The bank lending figures from the Boston Fed suggest the exposure is already substantial; the question is whether the transparency needed to manage it will arrive before the next stress test.
Source: https://www.americanbanker.com/news/feds-cook-downplays-systemic-risks-posed-by-private-credit
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