Banks Reassess £173 Billion of Private Credit Exposure Ahead of Basel 3.1
Updated
Updated · Marsh · Jul 15
Banks Reassess £173 Billion of Private Credit Exposure Ahead of Basel 3.1
2 articles · Updated · Marsh · Jul 15
Summary
UK banks face renewed scrutiny over £173 billion of banking-book exposure to private market funds and sponsor-backed leveraged corporates as Basel 3.1 approaches.
From 1 January 2027, the UK rules will raise capital needs through output floors, higher risk weights for unrated private assets, and tougher FRTB and CVA treatment of illiquid credit.
Private credit’s bespoke structures, thin secondary liquidity and concentrated sponsor, sector or supply-chain exposures make valuation, due diligence and contagion risks harder to manage than standard bank lending.
NBFIs now account for more than 51% of global assets, and higher bank capital costs could push more lending outside the banking system, deepening concentration and reputational risks.
Board oversight is becoming a central pressure point: Marsh said D&O claims made up 33% of bank client notifications in 2025, led by regulatory violations and governance failures.
With private credit giants limiting investor withdrawals, is the shadow banking system on the verge of its first major crisis?
As risky private assets enter 401(k) plans, are retirement savings being gambled on Wall Street's most opaque market?
With $800 billion in private credit fueling AI, is this a tech revolution or an uncontrollable financial bubble?
The $2 Trillion Private Credit Surge: Systemic Risks, Bank Exposures, and the Basel 3.1 Regulatory Response
Overview
Banks are urgently reassessing their large exposures to private credit as they prepare for the new Basel 3.1 capital standards coming in January 2027 and increased supervisory scrutiny in 2026. This shift is driven by the rapid growth of the non-bank financial system, which now accounts for about half of global financial assets and has more than doubled in size since 2008. In the UK and EU, non-bank institutions have become major lenders, highlighting deep connections between banks and private credit. As a result, banks must adapt to stricter regulations and greater oversight to manage risks in this expanding and interconnected market.