A key regulator of Wall Street banks has joined the Federal Reserve in warning about risky corporate borrowing that has reached record levels as lender protections are eroded.
The Office of the Comptroller of the Currency cautioned in its Semiannual Risk Perspective released Monday that it’s looking at “transactions with increasing leverage, weaker capital structures, and looser credit agreements.” The report includes a special section highlighting emerging risks in corporate bonds and lending, after the preceding version released in May didn’t address this high-risk debt.
Tir The OCC continues to be mindful of the high risks in the corporate bond and credit markets and particularly in the leveraged lending market, k he said, noting that in the first half of the year these loans were ere close to pull-out ve and the average leverage ratio of high corporate loans was high.
However, the agency, which represents the main regulators of banks’ market participation, with the Fed, said the economy is still in good condition, and that leveraged loans are still ın generally satisfactory credit quality Ancak.
The report came less than two months after the OCC chief, Joseph Otting, praised the banks for “really keeping it on track e in leveraged lending under ara relatively healthy ara measures. On Monday, he made similar statements: da We did not see significant default values. Banks generally feel comfortable with their commitments. “
When asked if it might take time for the Financial Stability Supervisory Board to look at the market as a potential systemic risk, Otting said he had not seen ik systematic levels at this point Finansal. The Council’s risk committee has discussed this and will continue.
The Fed recently launched a warning shot against the corporate debt markets. President Jerome Powell has prepared a report voicing his concern over Vice President Randal Quarles and the rapid growth of US erosion of lenders and lenders on financial stability of the United States. Fed officials also indicated that banks do not appear to be directly at risk from debt – they were often used to finance mergers and acquisitions of debtors.
Quarles said on Monday that he was saying that the credits he extended did not threaten the banks because they et sold them to other investors Qu. Instead of keeping their debts in their books, lenders are lending their debts to collateralized debt obligations or securities known as CLOs. It is usually sold to investors such as pension funds and insurance companies. The CLOs have not been threatened by the investor in the past, but Quarles said the Fed has been following signs that could change.
Even though the OCC and the Fed wanted to force Wall Street to refuse risky corporate lending, the agencies have limited tools. The regulators still backed the standards it guided bankers in 2013, but last year, a Government’s Office of Responsibility accused the agencies of exceeding their powers. The OCC and Fed officials responded by expecting the lenders not to have the standard.
The banking sector achieved record profits in the last quarter, but the OCC’s risk report says banks are facing increased competition pressure from each other and – more than ever – from other financial companies. This is a growing increase in insurance for many years.
The report also noted that cyber threats are a major danger to the sector, such as the risk of increased interest rates.
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