FSB Launching Inquiry Into Leveraged Loans

Kramer Levin Naftalis & Frankel LLP

The Financial Stability Board (FSB), an international body composed of representatives from governments, financial institutions, and international standard-setting, regulatory and central bank bodies that monitors and makes recommendations about the global financial system, is launching a formal examination of the global leveraged loan market.

One area of focus in the inquiry will be collateralized loan obligations (CLOs). Randal Quarles, Chairman of the FSB, has indicated that the FSB wants to identify the holders of CLOs around the world and assess the risks CLOs might pose during a severe downturn.

“From a financial stability risk [point of view], we need to know more about that than we do, and we have set up a process at the FSB to understand that,” Mr. Quarles said in a March 8 interview with the Financial Times.

It is uncertain at this time what other areas of the leveraged loan market will be focused on, when the inquiry will conclude or whether a formal report will be issued.

[View source.]

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