Leveraged-Loan Risks Start to Get the Fed’s Attention
Looser corporate borrowing standards could pose a financial stability concern, according to minutes from the last meeting.
The boom is not going unnoticed.
Photographer: Mark Wilson/Getty Images
Federal Reserve officials have finally caught on to the leveraged-loan boom.
In minutes of the Federal Open Market Committee’s September meeting, policy makers made explicit for the first time that they’re watching for any hint of risks to financial stability stemming from the more than $1 trillion market for U.S. leveraged loans. They’re late to pile on. There’s been no shortage of warnings from fixed-income traders and credit analysts who track investor protections. Just last month, my Bloomberg Opinion colleague Mark Whitehouse wrote a column that called the loans “one likely cause of the next crisis.” The Bank for International Settlements effectively said the same thing a week later. Moody’s Investors Service raised concerns in August. And, perhaps most important, former Fed Chair Janet Yellen said last month that “regulators should sound the alarm.”