Risky lending has shifted from traditional banks to less regulated parts of the financial system, analysts at the Federal Reserve Bank of New York have found.

Banks have scaled back so-called leveraged loans — lending to companies that already carry substantial amounts of debt — after regulators launched a crack down on the practice about three years ago, writes Alistair Gray in New York.

“Activity peaked around the first quarter of 2013 and has declined since then, suggesting that the [regulators'] lending guidance may have slowed originations,” wrote New York Fed analysts Sooji Kim, Matthew Plosser, and João Santos.

Over the same period, however, non-banks — financial institutions that do not take deposits — have been doing more of the risky lending.

“This evidence highlights an important challenge of macroprudential policies,” the analysts added. “Since those policies reach beyond individual banks and target risk in the entire banking system, they are more likely to trigger significant responses that may have
unintended consequences.”

Get alerts on Front page when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Comments have not been enabled for this article.

Follow the topics in this article