US Bank Lending to Competitors Surged 26% This Year

US banks have sharply increased lending to “competitor” non‑bank financial firms in 2025, with new loans to these institutions up about 26% year to date through late November, according to Fitch Ratings. This reflects both strong demand from private credit and private equity borrowers and banks’ search for fee and interest income, but it also tightens the financial link between banks and the shadow‑banking sector, adding systemic risk.​

What the headline refers to

Fitch reports that domestic U.S. banks originated roughly 363 billion dollars of new loans to non‑bank financial institutions (NBFIs)—mainly private credit funds, private equity firms, and hedge funds—through November 26, 2025. That volume is 26% higher than in the same period a year earlier, while all other loan types combined rose by about 291 billion dollars, meaning NBFIs accounted for a disproportionate share of loan growth.​

Why banks are lending more to NBFIs

Several forces are driving this shift. Regulatory capital rules have made it costlier for banks to hold certain riskier assets directly, so financing non‑banks that originate those loans can be more attractive from a capital and return‑on‑equity perspective. At the same time, private credit and private equity funds have continued to expand and need bank credit lines, fund‑finance facilities, and leverage to scale their activities, creating strong loan demand at relatively high spreads.​

Why this matters for risk

Greater lending to NBFIs increases interconnectedness between regulated banks and the less‑regulated shadow‑banking system, which can transmit stress in either direction during a downturn. Credit‑rating agencies have warned that if private equity or private credit portfolios suffer significant losses, banks’ exposures via fund‑finance loans, subscription lines, or secured facilities could become a channel for contagion and funding pressure.​

Relation to broader bank performance

The surge in lending to non‑banks has been an important contributor to overall loan growth and profitability for U.S. banks in 2025, with sector‑wide profitability reaching its highest level in more than a decade in the third quarter. However, analysts note that this growth may be pro‑cyclical, meaning it could reverse quickly if markets reprice risk, interest rates move unexpectedly, or regulators tighten oversight of bank–NBFI exposures.​