Yet that’s created a new, and potentially more dangerous, kind of risk. Precisely because roughly 85% of leveraged loans are held by non-banks, regulators are largely in the dark when it comes to pinpointing where the risks lie and how they’ll ripple through the financial system when the economy turns. More and more, critics are questioning whether regulators like the Fed have a handle on the problem or the right tools to contain the fallout. A big worry is highly leveraged businesses employing thousands could face severe financial stress and, in some cases, insolvency, deepening the next downturn.
