Canadian firms now carry $360 billion in private credit exposure, and the bulk of that money is parked in US markets. The numbers, released this week, point to a fast-growing corner of lending that could make the financial system shakier if things turn sour.
Where the money sits
Private credit — loans made outside traditional banks, often by investment funds or direct lenders — has ballooned in recent years. For Canadian companies, the exposure is now roughly equal to a third of the country's annual economic output. But the real concentration is south of the border. Most of that $360 billion is tied to US borrowers, meaning Canadian investors and lenders are betting heavily on the health of the American corporate sector.
That cross-border tilt matters. If US defaults climb, losses would ripple back to Canadian balance sheets, and the channels for those losses are less transparent than the traditional banking system.
Why the risk is rising
Private credit isn't new, but its scale and opacity are. Unlike publicly traded bonds or bank loans, these deals often lack standardized reporting. Valuations can be subjective. And when markets tighten, borrowers and lenders may find it harder to refinance.
That's why the growing exposure is drawing attention. The figures suggest Canadian financial institutions — and by extension, the broader economy — are more connected to private credit than previously understood. A sudden shock in that market could amplify stress, making it harder for firms to roll over debt and for lenders to exit positions without taking losses.
Regulators haven't flagged an immediate crisis, but the sheer size of the exposure has put them on alert. The message is clear: vigilant oversight is needed, not just in Canada but across the border.
Oversight in focus
For now, there's no single regulator with a full view of the private credit market. Canadian authorities have been mapping the exposure, but gaps remain. The challenge is that much of the activity falls outside traditional banking supervision, so the usual tools — capital requirements, stress tests, reporting rules — don't automatically apply.
The growing pile of private credit also complicates how risks are priced. If investors underestimate the danger, they'll keep lending at rates that don't reflect the true odds of default. That's a classic setup for a correction, and it's one reason the call for closer watching has gotten louder.
What happens next depends on how quickly regulators can close those data gaps. They're expected to lay out new reporting requirements in the coming months, and the question is whether those rules will capture the full scope of cross-border exposure.
