Private Credit: Trying To Count The Cockroaches

By the time CEO Jamie Dimon spotted the first cockroach, the walls were already full of them.

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In October 2025, JPMorgan Chase CEO Jamie Dimon issued a blunt warning after two high-profile private credit defaults — an auto parts manufacturer and a subprime auto lender — rattled the shadow banking world. “When you see one cockroach, there are probably more.” It was an unusually candid comment from the person who runs America’ most powerful bank. What Dimon did not mention was that JPMorgan, along with the five other largest U.S. globally systemically important banks, had spent almost a decade quietly building massive exposure to the very ecosystem he was warning about.

The 10-Q filings for the first quarter of 2026 have really peeled back the curtain. For the first time, America’s top six GSIBs — Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo, — disclosed the specific scale of their lending to non-depository financial institutions (NDFIs) such as private credit funds, hedge funds, business development companies, mortgage originators, Collateralized Loan Obligations, (CLO) vehicles, and asset managers. The numbers were staggering.

Q1 2026 earnings season was the first in which major banks provided granular, named disclosure of private credit exposure as a distinct sub-category within their NDFI portfolios

Public Data

A Trillion Dollars in the Shadows

Non Depository Financial Institutions (NDFIs) are financial companies that like banks, underwrite loans, but are not allowed to take deposits. That then means that bank regulators do not supervise and examine them. These institutions, often referred to as non-banks or shadow banks are institutions such as private equity–backed direct lenders, mortgage servicers, collateralized loan obligation managers, and the fast-growing private credit funds that now collectively oversee nearly $2 trillion in assets.

U.S. banks held approximately $1.14 trillion in loans outstanding to NDFIs as of early 2025, according to Federal Reserve data — up from roughly $250 billion in 2010. That is a compound annual growth rate of 23%, compared to just 4% for total bank lending over the same period. Add in unfunded credit commitments — the lines of credit banks have promised but not yet deployed — and total exposure likely exceeds $2 trillion.

For the six largest banks, NDFI lending now represents more than 6% of total assets, up from roughly 3% a decade ago. It is one of the fastest-growing, highest-yielding, and least-understood segments in American banking.

The Bank-by-Bank Scorecard

The 10-Q disclosures revealed a striking range of exposure and transparency across the six institutions.

Wells Fargo is the most exposed in both absolute and relative terms. Its “financials except banks” loan portfolio — the bank’s preferred term for NDFI lending — totaled $210.2 billion at the end of March 2026, equal to 21% of total loans and roughly 10.5% of total assets. The portfolio breaks down across four buckets: $76.2 billion in fund finance and asset manager facilities (largely subscription lines secured by LP commitments), $62.1 billion in commercial finance including $36.2 billion in private credit, $38 billion in real estate finance including mortgage warehouse lending, and $33.9 billion in consumer finance. To its credit, Wells Fargo also provided the most detailed disclosure of any bank — offering advance rates, obligor concentration data, and a reconciliation between its internal portfolio view and call report definitions. Non-accrual loans represent just $237 million, or 11 basis points, suggesting strong credit quality to date.

JPMorgan Chase carries approximately $330 billion in NDFI exposure on its regulatory call report, though management considers the “core” figure to be around $160 billion after excluding non-purpose margin loans and other items. Within that, roughly $50 billion is private credit — back-leverage facilities, BDC lending, and direct lending structures where JPMorgan is structurally senior to the underlying loans. CFO CFOJeremy Barnum was careful to frame the bank’s position: well-diversified, conservatively underwritten, with sector concentration caps and cash flow trapping mechanisms. Dimon, despite his cockroach comment, said by April 2026 that he did not view private credit risks as systemic — at least not for JPMorgan.

Citigroup reported total NDFI loans of approximately $118 billion, or roughly 4.7% of assets. Its $22 billion private credit warehouse book stands out for one specific reason: it is 100% securitized and 98% investment grade, with zero historical losses. Citi’s CFO Mark Mason has repeatedly urged analysts to evaluate the quality — not just the size — of NDFI portfolios. By Citi’s own metrics, it has the most defensively structured private credit book of the group.

Goldman Sachs told a different story. The firm disclosed the least granular NDFI data but telegraphed the most aggressive strategic ambitions: it is targeting a $300 billion private credit platform. Goldman’s “Other Collateralized Lending” the category that captures most of its NDFI exposure — grew 28% year-over-year to $105 billion by Q1 2026, the fastest growth of any loan category at the firm. Net charge-offs were essentially zero, but Goldman’s structural dependence on NDFI revenues is greater than any of its peers.

Bank of America has taken the most conservative public posture, emphasizing structural protection, noting that substantial equity at the operating company and fund investor level would need to be wiped out before the bank absorbs losses. Specific NDFI totals were not consolidated for public disclosure, with private credit exposure estimated around $33 billion.

Morgan Stanley has the least direct exposure of the six — private credit represents less than 1% of its $1.9 trillion in assets under management and 1% of wealth client assets. Its NDFI presence is concentrated through capital markets and wealth channels rather than direct balance-sheet lending. That said, the firm is reorganizing more than $100 billion of assets into its bank, a move that could shift this calculus significantly by 2027.

The six largest U.S. banks are deeply and increasingly intertwined with the non-bank financial system.

Public Data

Where the Risks Are Building

Not all NDFI lending is created equal, and understanding the sub-categories matters enormously.

Capital call and subscription line facilities — loans to private equity and private credit funds secured by the uncalled capital commitments of institutional investors like pension funds and sovereign wealth funds — remain the safest corner of this market. Historical loss rates are near zero. The collateral (LP commitments from CalPERS or a sovereign wealth fund) is remarkably durable.

CLOs are improving. Moody’s, for example, projects U.S. speculative-grade default rates to decline to 3% by October 2026 from 5.3% a year prior. But tighter spreads, looser covenants, and the rise of payment-in-kind (PIK) structures — where borrowers pay interest with more debt rather than cash — are flashing amber.

Middle-market private credit is where the most legitimate concern concentrates. KBRA, the ratings firm, reported that downgrades outpaced upgrades for seven consecutive quarters through early 2026, with stress “particularly acute” among consumer retail and healthcare roll-up borrowers. About 30% of companies with debt maturing before year-end carry leverage above 10 times or report negative EBITDA, all rated CCC or below. The estimated 2025 default rate for private credit ran as high as 4.7% by some measures — and that figure understates stress because of how distressed exchanges are categorized.

PIK income rising as a share of BDC investment income is the canary in the coal mine. When borrowers cannot pay cash interest, they roll it into more debt. The problem compounds quietly — until it does not.

The Structural Question

The Federal Reserve put a fine point on this in its 2025 stress test, introducing a dedicated NBFI stress scenario for the first time. The rationale was clear; large bank credit commitments to NBFIs reached $2.3 trillion in Q4 2024, growing 56% over five years while total loans grew only 21%. The scenario modeled a one-notch credit downgrade across leveraged NBFI borrowers; the results were sobering enough to prompt regulatory concern even in what remains a relatively benign credit environment.

Banks have been systematically choosing to reduce lending to small businesses, traditional middle-market borrowers, and consumers — categories where there are constrains by capital requirements, fintech competition, and thin margins — and moving toward NDFIs. Exposures to NDFIs offer higher yields, stronger fee economics, and sophisticated counterparties. While this reallocation is rational for each individual ban, it has created a system in which the banking sector and the shadow banking sector are more deeply intertwined than at any point in modern history.

For now, structural protections are holding. Advance rates are conservative. Obligor pools are diversified. LPs are institutional. And the credit cycle has not yet turned in earnest.

But as Dimon himself noted, if a credit cycle comes, it will probably be worse than people expect. In a system built on interlocking leverage, opacity, and the assumption that institutional LP commitments are ironclad, that is not a trivial warning.

The cockroach metaphor was memorable. What matters now is whether the walls will hold.