U.S. regulators yesterday warned about the dangers lurking in the booming market for loans to struggling companies, acting to combat concerns over emerging bubbles in parts of the financial sector, the Wall Street Journal reported today. The Federal Reserve and other banking regulators said that the controls and quality checks applied by lenders when extending leveraged loans have deteriorated. They also questioned whether some banks are doing enough to accurately gauge the risks of these practices. "Financial institutions unprepared for such stressful events and circumstances can suffer acute threats to their financial condition and viability," the regulators said. The warning came in the form of guidance, which lays out regulators' expectations for how banks should act. It said that regulators will closely monitor banks' underwriting of the loans, typically used to finance buyouts or acquisitions, as well as the ability of firms to manage their lending and withstand loan-related losses.
