The biggest US banks spent the past week tallying more than $185 billion of combined exposure to private credit, an asset class that's come under pressure in recent months. Executives -- many of whom sought to calm investors' jitters -- still see potential in the market.
Citizens Financial Group Inc.'s private-credit portfolio will likely climb about 5% in 2026, in line with past years, according to Chief Executive Officer Bruce Van Saun.
"It's an area that we feel is important to some of our big relationships," Van Saun said. And the bank's goal is to "cement that relationship and do a lot of other business."
For years now, the conventional wisdom was private credit was able to swell to a $1.8 trillion asset class largely because post-financial crisis regulations limited banks from extending credit to risky borrowers. This week's earnings revealed just how much of private credit firms' financial firepower actually came from banks.
Each lender measured it slightly differently, but the total points to more than $185 billion, with nearly 20% of that coming from regional banks. With investors and regulators still on edge about how weakness in the private credit market could spillover into the traditional financial system, executives spent much of the week trying to allay those fears.
"It's hard to envision losses on this book," U.S. Bancorp Chief Financial Officer John Stern said in an interview.
U.S. Bancorp was one of those lenders that updated details about their exposure -- a total of about $9.6 billion, including collateralized loan obligations. But that's not fazing its financial chief.
The bank is always preparing for worst-case scenarios, making sure it has concentration caps in place so that it hasn't bulked up too much in one area, he said. A situation that would provoke losses on its private-credit portfolio would be extreme, Stern said.
"If we start taking losses on this sort of thing, then there are other things to worry about," Stern said.
Executives said that the bar is high for the pressure in private credit to come and bite banks. They typically sit at the top of the capital stack, meaning losses would have to wipe out equity and junior debt before hitting banks, executives said.
Instead of private credit, PNC Financial Services Group Inc. CEO Bill Demchak said he thinks the real concern should be around more speculative-grade credit broadly. Weaker credit structures could pose a risk if the economy becomes worse than expected, he said in an interview on Bloomberg Television Thursday.
"We see higher default rates that are creeping up in that space," he said. "The news is, 'Hey, are there weaker credit structures out there in the face of an economy that might be getting weaker?' If that's the case, then I think you'll see credit losses be greater than what some people are assuming right now."
Banks are spotting opportunities to also step in as some private-credit firms pull back. Some of those nonbank lenders are grappling with redemptions, particularly with retail funds, causing them to pull back on lending, bank executives said. That's opening up some potential for depository institutions to step back in for those borrowers.
"We've had some nice wins," said M&T Bank Corp. CFO Daryl Bible in an interview on Wednesday. "A lot of borrowers want to bank with somebody that's going to have steady hands."