The quest for yield is winning out over regulator efforts to clamp down on risky lending, as an OCC report finds signs of rising credit risk in the banks. The agency notes two areas in particular - leveraged loans and indirect auto loans.
Leveraged loans are essentially the banker version of high-yield bonds and indirect auto loans are banks financing car loans through an auto dealer.
2013's issuance of covenant-lite leveraged loans - which strip away some protection for the lenders - hit $258B in 2013, about equal to the total amount issued between 1997 and 2012.
"Banks are looking for asset classes that performed better during the last crisis," says the OCC's Darrin Benhart. "The concern of course is that the previous crisis is not always the best indicator of what issues may happen next."