More than five months ago, the Federal Reserve and Office of the Comptroller of the Currency told some of the biggest banks to improve underwriting standards for non-investment-grade loans. The market is showing few signs of tightening as lenders chase lucrative fees.
The head of the world’s largest distressed debt fund is emphasizing the need for making careful choices as loan funds inundated with unprecedented cash enable junk-rated companies to borrow at cheaper rates.
The Federal Reserve this month will take a step toward revealing more about its oversight of the financial system, an area where the central bank has yet to match the strides it has taken toward transparency in monetary policy.
Federal Reserve Governor Daniel Tarullo said central bankers must preserve the option of using interest rates to lean against dangerous financial bubbles even as they strengthen supervisory tools to curtail systemic risk.
The Federal Reserve approved new standards for foreign banks that will require the biggest to hold more capital in the U.S., joining other countries in erecting walls around domestic financial systems.
Federal Reserve Chairman Janet Yellen said last week that clarification on how the Volcker Rule treats collateralized loan obligations would be coming “reasonably soon.” Managers of the funds that package junk- rated buyout loans aren’t waiting to find out.
Federal Reserve Governor Daniel Tarullo said more efforts are needed to end the perception that the biggest banks are “too big to fail” and to reduce risks that could spread rapidly through the financial system.
The Volcker Rule, aimed at making the financial system safer, is already prompting changes in the high-risk corporate loans market even as regulators spar over how to implement the measure without stunting economic growth.
Financial industry executives are almost as concerned about the growing demands of regulatory compliance as they are with market volatility, according to today’s survey of 400 financial companies by SunGard Financial Systems LLC and Longitude Research.