Private credit funds headquartered in the United States owed banks $349 billion at the end of 2025, highlighting how closely the rapidly expanding nonbank lending market remains connected to traditional finance. The figure comes as more borrowers use payment-in-kind interest, a mechanism that records interest as additional debt instead of requiring an immediate cash payment.
According to CryptoSlate, the combination could create pressure for private credit funds even when their portfolios continue to report interest income. Funds may be receiving promises of larger future repayments from borrowers while still owing banks cash under their own financing agreements.
Banks remain central to private credit
The Federal Reserve’s Oct. 16 account of private credit found that vehicles with a US footprint held more than $2.6 trillion in assets, including funds based outside the country. About $1.5 trillion of that total represented private loans to US businesses; the remaining assets included equities and other investments.
Within the US-domiciled segment, business development companies, or BDCs, accounted for $181 billion of bank debt at the end of 2025. Private debt funds owed a further $150 billion, while interval and tender-offer funds owed $18 billion. Together, those figures add up to $349 billion.
The Federal Reserve had previously classified some of this bank financing as belonging to financial companies abroad. Correcting that treatment makes the connection between banks and private lenders more visible, but does not indicate that individual banks hid their exposures.
Private credit funds raise money from investors and lend it to companies, often over several years. They can also increase their lending capacity through bank credit lines, which they draw and repay as financing needs change. Depending on the agreement, banks may lend against a fund’s investment assets or against commitments from investors to provide capital.
Federal Reserve researchers studying BDC financing found that five banks supplied approximately two-thirds of drawn bank lending in their 2012–2023 sample. BDCs also tended to maintain their banking relationships rather than regularly switching lenders. During periods of monetary tightening, banks charged BDCs a premium compared with similarly rated borrowers at the same institutions, even though BDC loans generally had seniority and collateral.
That financing cost can ultimately affect the companies borrowing from private credit funds, because lenders may pass higher funding costs through in the rates charged to businesses.
More interest is being added to debt
Boston Federal Reserve researchers reviewed filings from 168 BDCs, covering nearly 890,000 company-quarter loan observations. Their analysis found that around 10% of BDC loans were actively using payment-in-kind, or PIK, interest by early 2026, compared with approximately 6% in 2022.
PIK interest allows a borrower to add the interest due to its outstanding loan balance rather than paying it in cash. The arrangement may be agreed at the beginning of a loan to preserve cash for operations, but it can also provide flexibility to a company that is struggling to meet its obligations.
The lender receives a legal claim to a larger amount in the future, but the interest recorded as income is not cash available to pay the fund’s expenses or bank creditors. The increase in PIK use appeared across almost every industry in the Boston Fed sample. Construction showed one of the largest increases, with PIK loans rising from less than 5% of loans in 2022 to nearly 20% by early 2026.
Floating-rate borrowers also faced higher debt costs as benchmark interest rates rose during the period. A fund can continue meeting its obligations using cash reserves and payments from other borrowers, provided those sources remain sufficient. However, its banks are not automatically required to postpone their own interest payments simply because the fund has allowed borrowers to defer theirs.
Loan agreements may also restrict how much a fund can borrow against eligible collateral. If asset valuations decline or investments no longer qualify, a fund could be required to provide additional collateral or repay financing. That requirement can arise even if the fund’s assets still exceed its debts overall.
Managers may then need to draw on reserves, reduce new lending or sell investments that were not intended for rapid disposal. Limiting new loans can leave companies seeking refinancing with fewer options. Investor withdrawals can add to the pressure for funds that offer share-repurchase programs, although limits on those programs can slow redemptions. Listed BDCs operate differently: a shareholder selling shares on an exchange is paid by another market participant, so a falling share price does not automatically remove cash from the BDC.
Barclays exposure and the wider market connection
The issue also involves how banks classify private-credit exposure for capital purposes. On Oct. 19, the Financial Times reported that the UK’s Prudential Regulation Authority was examining an insider complaint concerning Barclays’ allocation of private-credit-linked total return swaps to its trading book.
Barclays told Reuters that 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, most of it in the banking book. The swaps referred to approximately £1.5 billion of underlying assets, with current mark-to-market exposure of about £300 million.
A total return swap transfers the economic performance of an asset without transferring ownership. One party receives the asset’s income and gains and absorbs its losses, while paying financing charges to the other party. In an April 2025 letter to bank finance chiefs, the PRA said that simply making hard-to-sell assets tradable was not enough on its own to justify applying trading-book capital treatment.
Banks generally have senior claims and collateral protections, while fund investors may absorb losses first. But enforcing those protections can force funds to raise cash and reduce financing available to borrowers. The resulting stress does not have to begin with a failed lender: a solvent bank demanding payment under its contract may be enough to create pressure.
That pressure could spread beyond private credit if investors sell unrelated assets to raise cash or if reduced lending leaves traders with less financing. The source material identifies Bitcoin as one market that could be affected through those broader liquidity channels, rather than because Bitcoin itself holds private credit loans.
Current market picture
Moneyiar market data at the stated time, Nov. 1, 2026, showed mixed performance among selected digital assets:
- Monad (MON): $0.0195906233, up 1.71% over 24 hours and down 7.22% over seven days, as of 12:54 (+03:30).
- Compound (COMP): $20.5815214964, up 1.19% in 24 hours and down 9.84% over seven days, as of 12:53 (+03:30).
- OriginTrail (TRAC): $0.3539058123, up 3.55% in 24 hours and down 4% over seven days, as of 12:54 (+03:30).
- Sentient (SENT): $0.0200490782, up 5.08% in 24 hours and 1.37% over seven days, as of 12:54 (+03:30).
