Non-bank firms hold far more large, risky leveraged loans than do banks, US says

28 January 2019 9:43pm
Private-equity firms, hedge funds and other non-banks hold far more high-risk leveraged loans than do banks in the $4.4 trillion portfolio of large syndicated bank debt, US bank regulators said.

“A material downturn in the economy could result in a significant increase in classified exposures and higher losses,” said a report by the US Federal Reserve, the Federal Deposit Insurance Corporation and the Office of Comptroller of the Currency. “More leveraged lending risk is being transferred to these non-bank entities.”

These entities — including insurers, pension funds and securitization pools — face “increased risks associated with leveraged lending,” said the regulators’ Shared National Credit program review Friday. The review cited a loosening of underwriting standards.