Climateer Investing: BIS: "Corporate debt could be the next sub-prime crisis, warns banking body"

Monday, July 1, 2019

BIS: "Corporate debt could be the next sub-prime crisis, warns banking body"

We take the Bank for International Settlements very seriously,* links below.
From the Guardian:
Group for central banks says borrowing by firms with low credit scores is growing alarmingly, especially in US and UK

Corporate borrowing poses a danger to the global financial system and could trigger a crisis in the same way US sub-prime mortgages sparked the 2008 banking crash, the organisation that represents the world’s central banks has warned.

Citing the US and the UK as the worst offenders, the Bank for International Settlements (BIS) said in its annual health check of the global financial system that a dramatic rise in borrowing in recent years by businesses with low credit scores meant the market for corporate debt was becoming increasingly unstable.

While it was not clear whether or how a crisis might unfold, the $3tn (£2.4tn) market for low-grade corporate debt was already “overheating” and risked provoking a panic that could send market values crashing as happened 11 years ago.

The Basel-based watchdog said a surge in the sale of collateralised loan obligations (CLOs), which are collections of low-grade corporate debts packaged for sale to investors, was reminiscent of the steep rise in their forerunner – collateralised debt obligations – which “amplified the sub-prime crisis”.

Echoing warnings earlier this year from the OECD, Agustín Carstens, the BIS’s general manager, said he was especially concerned at the way corporations had used complex debt products that lie outside the view of financial regulators to extend the level of lending.

“Perhaps the most visible symptom of potential overheating is the remarkable growth of the leveraged loan market, which has reached some $3tn,” he said....

....MUCH MORE

Here is the "Annual Economic Report 2019" page, released June 30

Related information

Statistical data behind the graphs of the Annual Economic Report 2019

Possibly also of interest, June 23:
Big tech in finance: opportunities and risks (PDF)

*On June 26, 2007 (i.e. pre-"Quant-quake", pre-Bear Stearns, pre-ought-eight-near-catastrohe) we posted a short little piece:
"(Off-topic) Banks' banker warns of downturn":

THE risk of a 1930s-style economic slump has been heightened by "euphoric" markets tapping cheap global credit, one of the world's pre-eminent financial institutions has said.

In its annual report, the Bank for International Settlements noted that the conditions that led to the Great Depression of the 1930s and the Asian crises in the 1990s reflected the current environment.
From The Age