OCC warns of building credit risk in banking system


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."

Full report

ETFs: XLF, FAS, FAZ, UYG, KRE, VFH, KBE, IYF, IAT, SEF, IYG, FXO, KBWB, FNCL, RKH, FINU, QABA, KRU, KBWR, RWW, RYF, KRS, FINZ

From other sites
Comments (3)
  • King Rat
    , contributor
    Comments (1736) | Send Message
     
    Targeting higher interest rates may help alleviate the quest for higher yield. When the junk yield is lower now than the 10 year treasuries were 7 years ago one must wonder if there is not a little desperation out there.

     

    One difference between the last crisis and a hypothetical crisis starting this year is that the federal reserve has less room to navigate easing policies. Many fixed income asset classes outperformed in 2007 and 2008 in large part due to falling interest rates. That scenario would not likely be possible until beyond the time frame in question.
    25 Jun 2014, 04:21 PM Reply Like
  • MisterJ
    , contributor
    Comments (1176) | Send Message
     
    LOL, now? They should have warned in 2005 but then they were all busy "cutting red tape". They go from one extreme to the other without ever being reasonable.
    25 Jun 2014, 04:25 PM Reply Like
  • Jerbear
    , contributor
    Comments (1255) | Send Message
     
    The last crisis is never the next crisis.
    The next crisis is the one we are not watching.
    25 Jun 2014, 09:10 PM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Hub
ETF Screener: Search and filter by asset class, strategy, theme, performance, yield, and much more
ETF Performance: View ETF performance across key asset classes and investing themes
ETF Investing Guide: Learn how to build and manage a well-diversified, low cost ETF portfolio
ETF Selector: An explanation of how to select and use ETFs