Bank regulators continue to sound the alarm about a type of debt that has become a hot product on Wall Street in recent years, The New York Times Dealbook reported on Friday. As part of an annual review of bank lending, three federal agencies sharply criticized a type of loan that Wall Street firms have been making to companies with low credit ratings. The firms sell most of these so-called leveraged loans on to investors, like hedge funds, pensions and mutual funds, which are on the hunt for higher-yielding investments. Although the banks do not hold on to most of the leveraged loans, regulators have been expressing their concerns about this lending splurge, saying that it could come back to hurt the banks and the wider financial system. Seeing a decline in the quality of leveraged loans, the regulators issued in March 2013 special guidance to the banks that aimed to press them to stop making loans that lacked important legal protections or left the borrowing companies overly indebted. On Friday, the regulators indicated that the banks have yet to fulfill the 2013 guidance.
