Fed ‘Looking’ to Curtail Leveraged Loan Risk
Bloomberg reported that the Fed is stepping up its oversight of high-risk leveraged loans, shifting to a deal-by-deal review after its previous industry-wide guidelines were largely ignored by banks.
Bloomberg said the $800 billion leveraged-loan market is serving as a test of whether Fed chair Janet Yellen is able to use supervisory tools to curtail excessive risk-taking as almost six years of near-zero interest rates drive investors to higher-yielding assets.
Bloomberg notes if the latest round of heightened scrutiny doesn’t work, regulators have other options. They can change supervisory ratings on banks, which could limit mergers. They could ask boards to sign agreements to make changes, or they could resort to fines, Bloomberg said.
To read the entire Bloomberg article, click here.