The Securities and Exchange Commission is playing an increasingly important role in discussions of economic stability as the share of nonbank lending rises, the agency’s chairman, Jay Clayton, said yesterday, MorningConsult.com reported. The growth of collateralized loan obligations (CLOs), in particular, is one of the primary nonbank lending issues “on the table recently” for discussion, Clayton said. He said that the SEC is studying CLOs, single securities backed by a pool of debt, which often have a low credit rating. “Even if we conclude that the growth in CLOs is not something that poses a systemic risk, having those discussions among market regulators and banking regulators is a really big thing,” Clayton said. About two-thirds of CLOs are held by nonbank investors, according to the Financial Stability Board. Nonbanks such as mutual funds, hedge funds and asset managers are increasingly controlling debt marketplaces and lending. According to Federal Reserve research, this growth in lending among nonbanks came after post-financial crisis legislation requiring large banks to meet high standards for the amount and quality of capital on their balance sheets. The Financial Stability Board estimates that banks’ share of global financial assets had fallen to 39 percent in 2018 from 45 percent in 2008, while nonbank lending had grown to 31 percent from 26 percent in the same time period.
