Margin Call has already sounded! The "dominoes" of US private credit are falling one after another.

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The U.S. private credit market is facing a severe liquidity test. As the underlying asset valuations plunge and investors trigger a wave of redemptions, risks are rapidly spreading from the shadow banking system to the traditional banking sector.

WallstreetCN previously noted that Deutsche Bank exposed about $30 billion in private credit-related risks, causing its share price to plunge as much as 6.1% in Frankfurt trading—marking the biggest single-day drop since April last year.

This means the brewing private credit crisis has not stopped at the shadow banking system; its impact on traditional banking is beginning to emerge.

In the past few weeks, the speed of the crisis' spread has been astonishing. Blue Owl sold loans at discounted prices to meet redemptions, which the market sees as private credit's "margin call moment." Afterwards, BlackRock reduced the book value of a loan to zero in just three months, becoming the last straw that broke the market. Soon after, several institutions—including Cliffwater and Morgan Stanley—announced restrictions on investor redemptions.

The core trigger of this crisis is the rapid deterioration of the underlying assets and liquidity drying up. The market is experiencing a vicious cycle from "asset sell-off" to "comprehensive redemption restrictions," and investors are being directly hit by significant asset devaluations.

Meanwhile, data shows U.S. banks have up to $2.8 trillion in undrawn loan commitments to Non-Deposit Financial Institutions (NDFIs), raising concerns that the crisis could spill over further into the financial system.

From “Margin Call” to Full-Blown Panic

The fuse of the crisis can be traced back to the beginning of this year. According to reports by Barclays and UBS, the private credit industry has huge loan exposures to software and technology companies, with such assets accounting for up to 55% of some portfolios. With the breakthrough developments in AI technology, the market began to question the long-term viability and cash flow stability of these software companies, causing related stock and bond prices to plummet.

As the truth about the impaired underlying assets surfaced, investor panic quickly escalated, and redemption requests surged. Blue Owl, managing over $300 billion in assets, was the first to respond—selling $140 million in loans at $0.997 per dollar to meet redemption needs. However, this action not only failed to appease the market but also exposed the lack of liquidity in the secondary market.

Just days later, the same situation happened to BCRED, a private credit fund under Blackstone Group, one of the world's largest asset managers. Facing strong redemption pressure, its senior partners used $150 million of their own funds to fill the redemption gap in an attempt to avoid limiting redemptions.

But what happened next added fuel to the fire. Just hours after Blackstone Group announced its solution, BlackRock declared it would write down a $25 million subordinated debt from book value to zero in just three months, and subsequently imposed a 5% redemption limit on its $26 billion HPS corporate loan fund—even though shareholders demanded redemptions of up to 9.3%.

If Blue Owl's decision to start selling loans was a "margin call moment," then BlackRock's act of reducing loan value to zero was the last straw that broke the camel's back.

The financial blog Zerohedge noted that BlackRock did what Blue Owl and Blackstone Group desperately tried to avoid, because they know this act would trigger more redemptions, force more sell-offs, causing share prices to drop lower and lower—a vicious cycle. At that point, everyone really was fighting for themselves.

Dominoes Falling One by One

BlackRock’s write-down rapidly triggered a chain reaction. Its $26 billion HPS corporate loan fund faced redemption requests of 9.3%, and ultimately capped repurchases at 5%. Subsequently, veteran interval fund manager Cliffwater encountered a record-high 14% redemption request and was forced to "close the gate," limiting first-quarter redemptions to 7%.

"If Cliffwater is the canary in the coal mine—and the first domino in the bank run we foresee—I'm not surprised." David Rosen of Rubric Capital previously warned. As it turns out, his concerns were not unfounded. Morgan Stanley’s nearly $8 billion North Haven Private Income Fund followed suit, capping redemptions at 5%—returning only about $169 million, less than half of what investors requested.

Even more shocking to the market, according to the Financial Times, JPMorgan has begun to mark down loan collateral for its private credit clients and limit their loan amounts, which undoubtedly intensifies liquidity pressures for private credit funds.

Banking Sector Sounds the Alarm

The turmoil in private credit inevitably affected the traditional banking sector that provides its funding.

Deutsche Bank disclosed in its annual report that, calculated at amortized cost, its private credit exposure rose to €25.9 billion (about $30 billion), accounting for 5% of its total loans. The report also showed its loan exposure to the tech industry (including software) increased to €15.8 billion.

Deutsche Bank is not alone. FDIC data shows U.S. banks’ loans to NDFIs surged to $1.4 trillion by the end of 2025. More worrying, banks have $2.8 trillion in undrawn loan commitments to these institutions. This means, if private credit institutions face liquidity shortages and rapidly draw down these credit lines, banks face massive default risks, with a potential total exposure of $4.2 trillion.

As the crisis continues to unfold, the market is closely watching the upcoming first-quarter fund flow disclosures. Barclays warns that a series of negative fund outflow reports may further widen spreads and exacerbate market concerns. Amid the turbulence in this $2 trillion market, the firewall between private credit and traditional banks is facing a stern test.

Risk Disclosure and DisclaimerThe market has risks; investment needs caution. This article does not constitute personal investment advice, nor does it take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their own circumstances. Investments made based on this article are at your own risk. ```