US-domiciled private credit vehicles owed banks $349 billion at the end of 2025. Some borrowers pay interest by adding it to their debt, so a fund can report income without receiving cash while its bank lender still expects payment.
Private credit vehicles domiciled in the US owed banks $349 billion at the end of 2025, according to the Federal Reserve's new private credit accounts. Meanwhile, other research showed borrowers paying interest with additional debt. A fund can accept that payment method while its lender still expects cash.
Business development companies owe the most
Business development companies (BDCs) owed banks $181 billion at the end of 2025. Private debt funds owed another $150 billion, and interval and tender-offer funds owed $18 billion.
The Fed had previously assigned those bank loans to financial companies abroad. Correcting that classification makes the financing easier to see, although it isn't evidence that individual banks concealed their exposure.
Interest paid in kind widens the cash gap
Boston Fed researchers examined filings from 168 BDCs. By early 2026, about 10% of BDC loans were actively using payment-in-kind interest, up from about 6% in 2022.
Payment-in-kind interest lets a business add interest to its outstanding debt instead of paying it in cash. The source says the lender then holds a legal claim to a larger repayment, but that interest added to debt can't be treated as cash available to pay the fund's expenses or its own creditors.
Banks, however, have protections that fund investors lack, including collateral and priority in distributing money. Exercising them can require a fund to produce cash before its borrowers are ready to pay. If loan valuations fall, a financing contract may require additional collateral or repayment.
Barclays swaps draw regulatory attention
On Oct. 19, the Financial Times reported that the UK's Prudential Regulation Authority was looking into an insider complaint about Barclays' allocation of private credit-linked total return swaps to its trading book. Barclays told Reuters its treatment complied with accounting and regulatory capital requirements.
Barclays reported £15 billion in total private credit exposure, mostly held in its banking book. The swaps referenced roughly £1.5 billion in underlying assets, with current mark-to-market exposure of about £300 million.
Bitcoin doesn't need to hold a private credit loan for this kind of stress to reach its market. According to the source, investors who need cash can sell assets unrelated to the original loss.
Source: CryptoSlate
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