Rise in leveraged loans troubling for regulators

A recent rise in leveraged loans has become a cause for concern for federal regulators who have moved in recent months to discourage unrestrained growth as they worry about the next financial bubble.

After banks make loans to companies, they can turn around and sell the debt to hedge funds, pensions or smaller mutual funds. These leveraged loans can direct money to businesses that might otherwise have a hard time making ends meet.

The fear among regulators with the Federal Reserve and the Officer of the Comptroller of the Currency is that these businesses with low ratings could suffer high losses in an economic downturn and not be able to cover their debts. So, the regulators have moved to prevent banks from arranging certain types of leveraged loan deals, according to the New York Times.  

Read more from the New York Times.