Credit default swaps (CDS) played a central role in the 2008 financial crisis, functioning as largely unregulated insurance on mortgage-backed securities (MBS). Today, major banks have begun trading CDS tied to private credit funds, raising concerns that similar risks may be building beneath the surface of the financial system.

JPMorgan (NYSE:JPM), and Barclays have begun trading credit default swaps linked to private credit funds run by Blackstone, Apollo Global, and Ares Management, The Financial Times reported. 

At the same time, Morgan Stanley (NYSE:MS) and Citigroup (NYSE:C) are reportedly offering to trade contracts tied to the three funds, according to the FT.

Despite ongoing concerns, bank leaders have sought to reassure markets that private credit is unlikely to pose a systemic threat.

Federal Reserve Chair Jerome Powell said during a talk at Harvard University last month that the recent turbulence in the private credit sector does not signal broader risks to the financial system.

Similarly, JPMorgan CEO Jamie Dimon emphasized that, in the bigger picture, private credit is unlikely to become a systemic issue. However, he cautioned that a downturn could expose weaker lenders, even if regulators believe any fallout would remain contained.

The S&P is also working with JPMorgan and Morgan Stanley to create a CDS benchmark, called the S&P CDX Financials Index, MSN reported. 

The move comes as the $3.5 trillion private credit market faces increasing scrutiny, with major banks reporting more than $108 billion in exposure. 

The index provides investors and banks with a quicker way to hedge or short the sector, amid rising concerns about liquidity, valuations, and risks tied to AI.

Asset managers such as Blue Owl Capital (NYSE:OWL), Morgan Stanley, and BlackRock have all recently limited withdrawals, after investors sought higher redemptions.

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