US Bank Lending to Non-Banks Jumps 26% in 2025

The numbers, as reported by Fitch Ratings and sourced from Federal Reserve data, are stark. Through November 26, 2025, domestic US banks originated approximately $363 billion in new loans to non-bank financial institutions. This category, often referred to as the “shadow banking” sector, specifically includes private credit firms, private equity shops, and hedge funds. The 26% year-to-date increase in this lending channel represents a profound acceleration in capital flows from the traditional, regulated banking system into the more opaque realms of alternative finance.

To fully grasp the scale of this shift, the figure must be contrasted with lending activity elsewhere on bank balance sheets. According to the same Fitch analysis, banks added just $291 billion across all other loan types during the same period. This means lending to non-banks was not only a major growth area but was the dominant driver of new loan volume in 2025, accounting for more than half of the total expansion. The disparity signals a clear reallocation of capital and risk appetite by US banks.

This surge is not a random fluctuation but a strategic response to evolving market dynamics. For traditional US banks, partnering with or funding non-bank entities like private credit funds offers a way to participate in lucrative, higher-yielding lending markets—such as leveraged buyouts and direct lending—that they may be constrained from engaging in directly due to post-2008 regulatory capital rules. It represents a form of risk-sharing and fee-income generation. For the recipients—private equity shops and hedge funds—these bank loans provide crucial, large-scale leverage to amplify their investment strategies and deal-making capacity.

The growing interdependence highlighted by Fitch Ratings carries significant implications for the broader financial system. On one hand, it demonstrates market efficiency and innovation, as capital finds its way to active investors. On the other, it creates new channels for systemic risk. Banks are now more exposed to the performance and potential volatility of the less-regulated non-bank sector. A downturn in private markets or a liquidity crisis at a major hedge fund could transmit losses back to the traditional banking system through these loan portfolios, challenging regulators at the Federal Reserve who monitor financial stability.

The $363 billion flow is actively reshaping credit markets. The influx of bank capital supercharges the firepower of private credit firms, allowing them to compete more aggressively with banks for corporate loans. This blurs the historical lines between traditional and alternative finance, creating a more hybrid ecosystem. The data suggests US banks are no longer mere competitors to these entities but have become key financiers and collaborators, embedding themselves deeper into the private capital value chain.

Looking ahead, this trend will likely draw increased scrutiny from analysts and regulators alike. Fitch Ratings’ report, based on Federal Reserve data, serves as a critical benchmark. Market participants will watch to see if this growth rate sustains or accelerates. More importantly, regulators will be tasked with understanding the concentration and interconnectedness risks this lending creates. The 26% jump in 2025 may mark a pivotal moment where the fusion of traditional banking and shadow banking moved from theory to a material, quantifiable reality on bank balance sheets, with lasting consequences for risk, return, and financial stability.