Lending to nonbank entities like buyout firms and private credit outfits has topped $1 trillion. This trend is happening amid concern by regulators that the connections between banks and their nonbank counterparts could present a systemic risk. The report, citing data from Fitch Ratings, said loans from banks to nonbank financial institutions (NBFIs) totaled roughly $1.2 trillion at the end of March, up 20% from last year and driven by lending to private credit firms. That data shows that, since the pandemic’s start, bank loans to NBFIs have gone from approximately $600 million at the end of 2019 to over $1 trillion when this year began, as businesses increasingly seek private credit funding. However, borrowers who look to private credit and direct lenders for funding tend to be riskier and more levered. As some of these loans are made with funds borrowed from banks, there are concerns that bad credit could infect the wider financial system. Another report from Fitch saying that a downturn in the private credit sector is “unlikely to have widescale financial stability implications for the largest banks,” at least in the short term. Still, Fitch said it’s hard to fully assess the risks and that “second-order effects are more difficult to quantify.”