Bank of England raises alarm over surge in high-risk lending

Link: https://www.theguardian.com/business/2018/oct/17/bank-of-england-high-risk-lending-leveraged-loans

Date: 17th October, 2018

Media: The Guardian

• What happened?

The Bank of England has issued a stark warning over the rapid growth in lending to indebted companies around the world, drawing parallels with the US sub-prime mortgage market that triggered the 2008 financial crisis. Gross issuance of leveraged loans by UK companies reached a record £38bn in 2017.

That is, they are making packages with the leveraged loans and the banks sell them to third-party investors, for this, the FPC (financial policy committee) said, adding that it would assess the risks to British banks in the 2018 banking industry stress tests.

• Whom and where it affects?

This situation affects the Bank of England and as a consequence, also the financial market.

• What sort of public or private institutions are involved?

The public institutions are the Bank of England

As private institution,  Reserva Federal de EE.UU .

• Why is it important for Banking and Finance?

Because there are growing concerns that companies will be unable to repay their debts as central banks begin to raise interest rates 10 years on from the crash, including three hikes this year by the US Federal Reserve; and this triggers a crisis.

• What do you think will be the consequences in the foreseeable future?

If the right measures are not taken now on the previous situation, it could trigger another systemic crisis, as happened with sub-prime mortgages.

• Key words: leveraged loans, sub-prime mortgages, stress test, financial crisis.