Banks Quietly Loaded Up on Private Credit Risk, Warns Report

The IRA Bank Book Q1 2026 highlights growing exposure of US banks to non-depository financial institutions and potential for rising credit costs ahead.

Mar. 12, 2026 at 5:38pm

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Whalen Global Advisors has released a report titled 'The IRA Bank Book Q1 2026' that warns of the growing exposure of US banks to non-depository financial institutions, including private credit funds, credit managers, and private equity sponsors. The report notes that these conditions are reminiscent of the 1920s when many believed asset values had reached a 'permanently high plateau' before the sharp declines. The report suggests that sectors like private equity, credit, and AI may lead to higher credit costs ahead, which could result in declining earnings and stock prices.

Why it matters

The report highlights the potential risks that banks have taken on by quietly loading up on private credit exposure, which could lead to significant losses if the credit cycle turns. This is particularly concerning given the size and interconnectedness of the shadow banking system, which could pose systemic risks to the broader financial system.

The details

The report notes that 2025 was an 'extraordinary and deeply distorted period' for banks, with low credit loss rates and soaring asset values. However, the report warns that these conditions are unlikely to last, and that history has shown that high asset prices can suppress the cost of credit until asset values fall. The report estimates that defaults in private credit could reach 15%, roughly three times the peak delinquency rates experienced by bank loans during the 2008 financial crisis.

  • The IRA Bank Book Q1 2026 was released on March 12, 2026.

The players

Whalen Global Advisors LLC

A New York-based consulting, risk analytics and publishing company focused on the intersection of financial institutions, credit markets, and global macro risk.

Christopher Whalen

The chairman of Whalen Global Advisors and the author of the report.

UBS

A financial services firm that provided an estimate of potential defaults in private credit.

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What they’re saying

“The year 2025 was an extraordinary and deeply distorted period for many reasons, including low credit loss rates and soaring asset values. But history teaches us that these conditions rarely last. QE teaches us that high asset prices suppress the cost of credit, until asset values fall. UBS believes defaults in private credit could reach 15% roughly three times the peak delinquency rates experienced by bank loans during the 2008 financial crisis.”

— Christopher Whalen, Chairman, Whalen Global Advisors (The IRA Bank Book Q1 2026)

“In the 1920s, many observers believed that asset values had reached a 'permanently high plateau'. We are hearing similar language today. Sectors like private equity and credit, and AI, all promise higher credit costs ahead. When credit costs rise, earnings decline and stocks follow. The sharp and sudden declines in bank stocks in February may be an early reminder of that dynamic.”

— Christopher Whalen, Chairman, Whalen Global Advisors (The IRA Bank Book Q1 2026)

What’s next

The report suggests that the sharp and sudden declines in bank stocks in February may be an early indicator of the potential volatility and credit risks that lie ahead for the financial system.

The takeaway

The report highlights the growing risks that banks have taken on by quietly loading up on private credit exposure, which could lead to significant losses if the credit cycle turns. This underscores the need for greater transparency and oversight of the shadow banking system to mitigate the potential for systemic risks.