The Financial Stability Board has published a report on the vulnerabilities associated with leveraged loans and collateralized loan obligations. In the report, the FSB assesses how the leveraged loan and CLO markets have developed and analyzes the potential implications for global financial stability.
Noting that there are data gaps, the FSB makes the following conclusions:
- there are indications that weaknesses in the leveraged loan and CLO markets have increased since the 2008-09 global financial crisis;
- banks have the largest direct exposures to leveraged loans and CLOs. These exposures are concentrated among a limited number of large global banks and have a significant cross-border dimension; and
- non-bank investors, such as investment funds, insurance companies, pension funds, broker-dealers and holding companies, also have exposures to leveraged loans and CLOs.
The FSB intends to consider whether there is scope to close data gaps, but will continue to analyze the financial stability risks and will examine the regulatory and supervisory implications related to leveraged loans and CLOs.