U.S. bank lending to shadow banks, including private credit and hedge funds, surged to $1.47 trillion by early 2026, a 2,518% increase since 2010. This growth far outpaces traditional lending categories like mortgages and small business loans, which remain stagnant or slow. The surge follows significant deregulation starting in 2025, including the removal of Wells Fargo's asset cap and eased capital requirements, enabling banks to deploy excess capital into shadow banking. Regulators warn this rapid growth poses systemic risks due to high leverage and interconnectedness, reminiscent of pre-2008 financial crises. The shift raises concerns about credit allocation away from Main Street and increased financial instability risks.
