Financial Stability: Agencies Have Not Found Leveraged Lending to Significantly Threaten Stability but Remain Cautious Amid Pandemic, Report to Agency Officials [open pdf - 2MB]
From the GAO (Government Accountability Office) Highlights: "The market for institutional leveraged loans grew from an estimated $0.5 trillion in 2010 to $1.2 trillion in 2019, fueled largely by investor demand for CLO [collateralized loan obligation] securities. Some observers and regulators have drawn comparisons to the pre-2008 subprime mortgage market, noting that loan origination and securitization may similarly spread risks to the financial system. These fears are being tested by the COVID-19 [coronavirus disease 2019] pandemic, which has significantly affected leveraged businesses. This report examines assessments by regulators, FSOC [Financial Stability Oversight Council], and others--both before and after the COVID-19 shock to the economy--of the potential risks to financial stability stemming from leveraged lending activities, and the extent to which FSOC monitors and responds to risks from broad-based activities like leveraged lending, among other objectives. GAO examined agency and private data on market size and investor exposures; reviewed agency, industry, and international reports; and interviewed federal financial regulators and industry participants."
Government Accountability Office: https://www.gao.gov/