Democrats are right to keep pushing for more information and data about leveraged loans and collaterialized loan obligations(CLOs). Tuesday’s hearing was a very good start to what is likely to be a lengthy fact finding mission. Leveraged loan and CLO markets are very opaque. In order to figure out how much banks are holding in these two financial products, you have to look at each bank’s financial statements or regulatory call reports. And to figure out the risk weighting of their securitizations, such as CLOs, you have to analyze banks’ Basel III Pillar III disclosures.
To date, the Financial Stability Board has not identified “material and persistent negative effects on SME [small-medium enterprise] financing in general” due to Basel III “although there is some differentiation across jurisdictions.” Banks are the primary providers of external SME financing, hence the reforms that are most relevant and have been implemented to date are the initial Basel III capital, leverage, and liquidity requirements agreed upon in 2010.
I thought the point of a congressional hearing is to HEAR from the invited witnesses not to berate them. I could not help but notice that Congressman Andy Barr read from a prepared script where he often stumbled over words and figures. Who wrote the speech for him? Someone in the financial industry?
Illinois’ 4th congressional district lies very far from Wall Street and its originations leveraged lending and securitizations, such as collateralized loan obligations (CLOs). Yet, those are terms that the constituents in that district are likely to hear more and more. The district’s representative and a member of the House’s Financial Services Committee is Jesús García, known by his nickname Chuy.
At the beginning of 2007, leveraged loans were 37% of the total outstanding with high yield bonds being 67%. As of a few days ago on May 31st, leveraged loans are now 45% and high yield bonds are 55%. With 80% of leveraged loans being covenant lite, and a rising amount of below investment grade bonds, there is plenty that legislators and regulators should be analyzing.
Democratic New York Congressman Gregory Meeks and Chair of the Subcommittee on Consumer Protection and Financial Institutions, is holding a hearing, “Emerging Threats to Stability: Considering the Systemic Risk of Leveraged Lending,” on June 4 at 2:00 pm. The very rapid rise of leveraged loan volumes, rightly has Congressman Meeks and other Democratic legislators concerned enough to call for a public discussion about leveraged loan risks, and how they could cause a significant market disruption in an economic downturn, or at worst, could pose a financial systemic threat.
Pobre México. Tan lejos de Dios, tan cerca de los Estados Unidos. Poor Mexico. So far from God, so close to the United States, has been a lamentation oft repeated by Mexicans to describe their fate of being intertwined with the United States. Stock and currency markets reacted negatively to Trump’s threat of imposing 5% tariffs, and possibly more, on Mexican goods imported into the United States.
Over a decade of low interest rates and increased participation by non-bankshas led to record high new issuance of B3 rated issuers. 44% of new issuers were rated B3 in 2018 in comparison to 22% in 2007, at the start of the last recession.
The more information comes out in dribs and drabs about and from Deutsche Bank, I remain convinced that something is truly rotten there. David Enrich of the New York Times, wrote recently that reportedly, five current and former Deutsche Bank, anti-money-laundering professionals found in 2016 and 2017 that multiple transactions involving legal entities controlled by Donald Trump and his son-in-law, Jared Kushner, set off alerts in a computer system designed to detect illicit activity.
Deregulation and weakening of bank supervision have happened at a stunning pace as most people glaze over non-grabbing headlines. This is not the time for complacency; taxpayers much be protected.
More than ever, we need responsive, people-centered policies that can support this nation’s workers, to ensure that our community can retain their return to pre-recession levels and continue chipping away at longstanding inequities. Latinos, like all hard-working Americans, deserve the right to strive for and achieve the American dream.
American taxpayers have a much heavier debt burden than they are aware of. How and when municipalities publish their financial accounts varies greatly throughout the United States. A significant number of U.S. municipalities do not publish all the liabilities that their residents have such as housing and transit authorities and school districts. Unfortunately, this means that taxpayers are not aware of the entire extent of their cities’ liabilities, which all too often are unfunded.
Leveraged lending and collateralized loan obligation (CLO) markets warrant attention from regulators, rating agencies, and market participants. The chairs of the Federal Reserve Board, the Federal Deposit Insurance Corporation(FDIC), and the Office of the Comptroller of the Currency (OCC) jointly responded to a letter with a number of important questions about banks’ exposures to leveraged loans and CLOs sent to them in November by Senator Elizabeth Warren.
As leveraged lending has continued to rise, Senator Elizabeth Warren has sought answers from U.S. Treasury Secretary Steven Mnuchin and from bank and financial regulators. Thus far, only the Securities and Exchange Commission, has provided answers to some of her important questions.
Total asset-backed securities issuance (ABS) in the United States grew 140% in the period of 2008-2018. Yet, the first four months of 2019 show a decline in total ABS issuance.
The Financial Stability Oversight Council, led by U.S. Secretary of the Treasury Steve Mnuchin, needs to conduct a thorough analysis of banks’ and non-banks’ exposures to leveraged lending and to collateralized leveraged loan obligations (CLOs), where the majority of leveraged loans are packaged.