A key regulator of Wall Street banks has joined the Federal Reserve in warning about risky corporate borrowing that has reached record levels as lender protections are eroded.
The Office of the Comptroller of the Currency (OCC) cautioned in its Semiannual Risk Perspective released Monday that it's looking at “transactions with increasing leverage, weaker capital structures, and looser credit agreements.” The report includes a special section highlighting emerging risks in corporate bonds and lending, after the preceding version released in May didn't address this high-risk debt.
“The OCC remains attentive to the heightened risks in the corporate bond and loan markets and, in particular, the leveraged lending market,” the agency said, noting “near-record issuance” of such loans in the first half of this year, with the average leverage of large corporate loans at a record high.
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But the agency—which, along with the Fed, represent the main regulators of banks' participation in the market—said the economy is still in good shape and the leveraged loans still have “generally satisfactory credit quality.”
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