Non-bank finance's mounting loan leverage risks stability, global watchdog warns

5 February 2019 9:28am
Investment firms’ increasing appetite to hand out leveraged loans is raising regulatory alarm bells, a new report by the Financial Stability Board has said.

The willingness of insurance companies, private-equity firms and pension funds to compromise on protections against default has caused a rapid growth in high-yield loans to riskier investors such as poorly rated corporates, said the report, published today.

Non-bank investors, such as investment funds, account for the lion’s share of the global leveraged loan market, which is worth $2.3 trillion and growing, regulators at the international body said. They called for closer scrutiny of these firms to make sure such lending doesn’t cause the next global crisis.