Risk is just fine, U.S. government tells Wall Street lenders
Debt has been growing far faster than the U.S. economy, which is about a third bigger than at the end of 2007.
The U.S. government is hammering home the message to Wall Street banks that it’s okay to dial up the risk when lending to companies.
Two regulators, including Federal Reserve Chairman Jerome Powell, separately said this week they are lightening up on guidelines that limited lending to companies with big debt loads. The comments follow an appeals court decision that looks set to make it cheaper for money managers to bundle corporate loans into bonds — a ruling some say could increase the flow of credit for private equity buyouts and other highly indebted corporations.
The government is loosening its reins after companies have been on a decade-long borrowing spree, fueled in part by interest rates that have been close to zero. Outstanding loans to highly indebted companies, known as leveraged loans, have grown about 70% to nearly $1 trillion since the end of 2007, S&P/LSTA data show. Junk bonds outstanding have more than doubled over that time, Bloomberg Barclays index data show. Debt has been growing far faster than the U.S. economy, which is about a third bigger than at the end of 2007, according to gross domestic product data compiled by Bloomberg.
“The leveraged loan market is already awash in capital,” Andrew Curtis, head of the investment team for Z Capital Credit Partners, said. “These developments will likely drive further excesses in leveraged lending.”
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