Banks could be stuck with riskiest corporate loans during downturn – Fed paper
Researchers say loan syndication may leave banks unable to offload leveraged debt in downturn
Banks may be forced to hold on to the riskiest loans during a downturn, research published by the Federal Reserve finds.
Seung Jung Lee et al use a dataset that links credit and pricing information to examine the disruption of corporate loans from 2010–18. They examine the loan syndication process, which involves a group of lenders funding various portions of a single loan.
The authors find that, at the end of 2018, the amount of outstanding leveraged loans – those graded BB or lower – was $1
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