Who’s Exposed? With stocks like Blue Owl Capital (OWL) down over -50% the past year, we worked to quantify small-cap Banks’ risk and exposure to the private credit crash-up. Regulatory changes made lending to private credit an attractive proposition to banks who could garner higher spreads to high quality investors whose books of business were designed to offer strong returns with any losses supported by solid equity-cushions. The industry has grown rapidly since the GFC as Jim detailed in last week’s note “3 Charts—Private Credit in Perspective”. Given small-cap banks operate under different regulatory scrutiny, one could readily expect danger lurking in small-cap Banks’ loan books. While loans to non-depository financial institutions (NDFIs) have been required disclosures in Federal Financial Institutions Examination Council (FFIEC) Call Reports since 2010, it was only more recently in 2024 that banks with $10B or more in assets were required to show the NDFI loan breakdown into Mortgage Credit, Business Credit, Private Equity, Consumer Credit and Other NDFI categories. Given that $10B hurdle captures less than a quarter of R2000 Banks, the opportunity for idiosyncratic risk exists even if it is not meaningful to the financial system as a whole. The good news is that while R2000 Banks’ NDFI loans grew briskly in 2025, up 45% YoY, their representation within Banks’ overall loan book remains relatively minor—other than a few banks which we highlight inside.