A top markets regulator said he was concerned about the growth of loans by banks to highly indebted companies, joining other policy makers who have highlighted risks that leveraged loans could pose to financial markets, the Wall Street Journal reported. Securities and Exchange Commission Chairman Jay Clayton on Monday said that in the leveraged-loans sector, he saw echoes of the period before the 2008 financial crisis when market expectations were “out of step with reality” and ultimately proved wrong. “To the extent that large concentrations of leveraged loans with long settlement cycles are in funds, that’s a case where liquidity expectations may be out of whack,” Clayton said. Lending by banks and other financial companies to highly indebted companies has grown in recent years, with the leveraged-loan business marking a bright spot for banks seeking to boost income during a period of low interest rates. In recent months, regulators at the Federal Reserve and Democrats in Congress have drawn attention to the systemic risks posed by the popularity of heavily leveraged loans.
