logo

Are packaged business loans beginning to be viewed as a risk to the banking system?

Wednesday, August 5, 2020
By Esther Tsvayg
YES

Banks' holdings of what are known as collateralized loan obligations--bundles of loans to smaller companies that have maxed out their borrowing--grew in 2019, just in time for the coronavirus-related recession to increase pressure on borrowers and raise the risks of defaults cutting or wiping out the value of their holdings. Some analysts worry that the packaged loans could pose a problem for the financial system similar to that of bundles of home mortgages in the last financial crisis.

S&P Global, which rates borrowers' credit-worthiness, says that the first pandemic-related defaults (by retailers, health clubs and others most affected) have begun to "trickle through." Lower credit ratings hitting borrowers "at record speed" are a sign to watch out for increasing trouble if business conditions don't improve.

This fact brief is responsive to conversations such as this one.
ABOUT THE CONTRIBUTOR
Between 2020 and 2022, under close editorial supervision, Gigafact contracted a group of freelance writers and editors to test the concepts for fact briefs and provide inputs to our software development process. We call this effort Gigafact Foundry. Over the course of these two years, Gigafact Foundry writers published over 1500 fact briefs in response to claims they found online. Their important work forms the basis of Gigafact formats and editorial guidelines, and is available to the public on Gigafact.org. Readers should be aware that while there is still a lot of relevant information to be found, not all fact briefs produced by Gigafact Foundry reflect Gigafact's current methods and standards for fact briefs. If you come across any that you feel are out of date and need to be looked at with fresh eyes, don't hesitate to contact us at support@gigafact.org.
FACT BRIEF BY
facebook
twitter
email
email