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Leveraged Lending Isn't Posing Crash Threat, Fed Chairman Says

"We see a category of debt that is growing faster than the income of the borrowers even as lenders loosen underwriting standards."

By Jesse Hamilton | May 21, 2019 at 07:56 AM
Fed Chairman Jerome Powell Jerome Powell, chairman of the U.S. Federal Reserve. Photographer: Anna Moneymaker/Bloomberg

Federal Reserve Chairman Jerome Powell agrees that the torrid market in high-risk corporate loans looks a lot like the mortgage industry in the run-up to the subprime crisis, but he says U.S. regulators are watching closely this time around and the financial system is better shielded.

In a sweeping analysis of leveraged lending Powell delivered a response to critics who argue that the Fed is asleep at the switch as another catastrophe looms. Despite obvious warning signs in these risky business loans, the central bank chairman said, the $1.2 trillion market doesn’t represent a current threat to the financial system.

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