The role of non-bank financial intermediaries in the financial system has increased markedly over recent decades. This column documents how the growth of private markets, one of the fastest growing segments of the sector, has created multiple channels of interconnection between banks, firms, institutional investors, private equity, and private credit funds. Banks’ exposures extend from lending to common borrowers, to direct lending to funds, financing vehicles and linkages with asset managers. While available measures suggest that euro area banks’ exposures remain limited, data gaps and hidden leverage make it difficult for intermediaries and supervisors to assess risks across the full intermediation chain.

The role of non-bank financial intermediaries (NBFIs) in the financial system has increased markedly over recent decades. Research has highlighted both the benefits of this expansion – reflecting NBFIs’ comparative advantages in liquidity transformation and financing riskier but potentially more innovative projects – and vulnerabilities arising from growing interconnections and the interaction between liquidity and leverage risks (Claessens 2024, Fecht and Goldberg 2025). As a result, the intermediation activities and risks of banks and NBFIs have become increasingly intertwined (Acharya et al. 2024). Europe is no exception: euro area banks have increasingly reallocated lending towards non-bank financial institutions (ECB 2025, Li et al. 2026).

Within the NBFI sector, private markets have been among the fastest-growing segments in recent years, particularly private equity (PE) and private credit (PC) (Figure 1). Private credit, in particular, has emerged as an important complement to traditional sources of debt financing;¹ it tends to serve segments in which banks are less active, including younger and PE-sponsored firms, more leveraged, and with less collateral.²

Figure 1 Global private equity and private credit funds’ assets

Percentage of GDP

Source: Own calculations based on Pitchbook data.

The expansion of private markets, however, has not occurred in isolation from the banking system. The Financial Stability Board recently emphasised that, in particular, the PC ecosystem comprises a broad range of interconnected intermediaries: asset managers of PC funds operate alongside banks, institutional investors, and PE funds (FSB 2026). As private markets grow, the boundaries between banks and NBFIs therefore become increasingly blurred.

This raises highly policy-relevant questions. Are private markets changing the role of banks in the credit market? Is the expansion of private markets reshaping the channels through which risks are distributed across the financial system? In this column, we examine these questions from the perspective of European banks.

Private markets add new layers to the traditional bank–firm relationship

The growth of private markets has created multiple channels of interconnection between banks, private market funds, and borrowers, adding new layers to the traditional bank-firm relationship.

We map bank-private market relationships at four distinct levels – firm, fund, facility and asset manager – each involving different prudential treatments (Figure 2).

At the firm level, a bank may lend directly to a company that also borrows from a PC fund, or it may finance a PE-backed acquisition. In these cases, the bank and the fund are exposed to the same borrower. The prudential treatment is essentially that of a direct corporate loan and therefore depends on the credit quality of the borrower; under the standardised approach, the risk weight is typically around 100%.

At the fund level, banks provide financing directly to funds. This can take the form of loans secured by the fund’s net asset value (NAV financing) or by investors’ uncalled capital commitments (subscription lines or capital call financing).³ The prudential treatment is generally more favourable than for a direct loan to the underlying companies: in NAV financing, the fund typically has better credit quality than the individual firms in its portfolio, partly because of portfolio diversification; for subscription lines, capital requirements depend instead on the credit quality of the fund’s investors.

At the facility level, a bank may lend to a special purpose vehicle (SPV) holding a pool of PC loans or purchase a tranche of a collateralised loan obligation (CLO) backed by such loans. These transactions are generally overcollateralised, and banks typically hold senior exposures, while the fund retains the junior position. Seniority and overcollateralisation provide credit protection to the bank and can substantially reduce the corresponding risk weight – in some structures to around 20% (Chernenko et al. 2025).

As a result, both fund- and facility-level financing can be attractive to banks by reducing capital intensity and diversifying credit exposures across a potentially different pool of counterparties.

At the asset-manager level, a banking group may own an asset manager running PE or PC funds or partner with an unaffiliated manager. These arrangements do not generate direct credit exposures, but can create operational, reputational and concentration risks.

Importantly, these links can also run in the opposite direction. Through synthetic risk transfers (SRTs), banks can transfer part of the credit risk on their loan portfolios to PC funds and other NBFIs, while keeping the underlying loans on their balance sheets.⁴

Figure 2 Layers of bank-private market linkages

Assessing the exposure of euro area banks

Assessing these linkages for euro area banks is complicated by private market opacity and data gaps. Focusing on PC alone, the available evidence – largely based on supervisory surveys and bank disclosures – suggests that euro area banks’ direct drawn exposures are relatively limited in aggregate, at around €60–70 billion, roughly 0.2% of total assets (ECB 2026, FSB 2026). These exposures are concentrated in a few large banks and arise predominantly at the facility level, through lending to SPVs and investments in CLOs.

Yet this figure provides only a partial view of banks’ overall exposure to private markets. Existing measures mainly capture direct links to funds or financing vehicles and largely miss indirect exposures. In particular, they do not capture the full exposure to firms financed by both banks and PE or PC funds. As a result, relatively small direct exposures to private markets do not necessarily imply equally limited exposures to the broader private market ecosystem.

More generally, several data gaps make it difficult to reconstruct the interconnections across the different layers. For instance, supervisory reporting does not systematically identify PE and PC funds, particularly when they are domiciled outside the euro area, nor does it provide a comprehensive mapping of PE- or PC-backed firms. Similarly, SPVs and CLOs associated with PC transactions cannot always be consistently identified. These limitations make it difficult to aggregate exposures consistently across the firm, fund, facility and asset-manager levels – and therefore to obtain a complete picture of where risks ultimately reside.

A nuanced policy trade-off: The good, the bad, and the ugly

Overall, the growing involvement of European banks in private markets has important policy implications.

The good. The expansion of private markets has broadened access to finance for riskier but potentially more innovative firms, less served by traditional bank lending. This pattern is documented for the US, but recent evidence suggests that it also holds in European countries. For example, in Italy, over 2023-25, PE and PC transactions were substantially more concentrated in innovation-intensive sectors than new bank lending (Figure 3).⁵

Figure 3 Composition of different types of financing to Italian firms by sector

Percentage share of new transactions in 2023-25

Source: Anacredit, Eurostat, OECD, and PitchBook. 
Notes: For private equity and private credit, the analysis is based on new transactions for which the amount invested is available. Sector innovation is based on sectoral R&D intensities as classified by the OECD. In particular, the “high innovation sectors” category includes firms operating in high-technology manufacturing industries and high-technology services, identified according to the Eurostat-OECD classification (see OECD, ISIC Rev. 3 Technology Intensity Definition, 2011). “Other sectors” include other manufacturing and services, extractive and energy industries, and construction.

Crucially, this expansion has also occurred in a way that partly limits the risks retained by banks as they typically hold senior exposures, while funds retain more junior positions. This allocation of risk differs from the run-up to the Global Financial Crisis, when banks had significant exposures to junior tranches.

The bad. At the same time, growing bank–fund interconnections create additional channels for shock transmission. A bank may be exposed to the same underlying borrower directly through a corporate loan and indirectly by financing a PC fund or a vehicle. A deterioration in a common borrower can therefore generate losses at different points along the intermediation chain. Under stress, exposures that appear diversified may become more correlated.

The ugly. Opacity remains the main weakness. Looking only at private-market funds’ balance sheets may provide a relatively reassuring picture, as they are generally only lightly leveraged.⁶ But fund-level measures do not capture leverage at the borrower and facility level, nor do they reveal the extent to which several financial institutions may ultimately be exposed to the same firms. 

Hidden leverage along the intermediation chain and incomplete information complicate banks’ risk management (Buch 2025). An ECB exploratory review found that risk management practices were often fragmented and that euro area banks have difficulties to systematically identify transactions in which they lent to the same company alongside PC funds (Galbarz et al. 2024). Banks may therefore struggle to reconstructing their aggregate exposure to common borrowers. As a result, concentration risk may be considerably larger once direct and indirect links are viewed together.

Recent episodes illustrate how these channels can operate in practice (Financial Times 2026, Reuters 2025), showing how losses originating in private markets can reach European banks through different channels. The central policy challenge will remain to ensure that banks and supervisors can identify risks across the full intermediation chain before stress makes those connections visible.

Source : VOXeu