Bank risk-taking is back. Toughened regulation such as the Dodd-Frank financial reforms haven’t entirely killed banks’ appetite to underwrite risky debt. According to a recent research note by Moody’s Investors Service, underwriting standards are loosening up at US banks.
Quartz has already noted that subprime auto lending has lately approached levels not seen since the heady days before the 2008 financial crisis. But Moody’s report indicates that since 2011 lenders have also loosened their grip on lending standards in areas such as leverage lending (lending to companies or individuals that already have a lot of debt) and indirect consumer loans (lending to third-party companies that in turn lend to consumers, such as car dealerships). Here’s a look at the chart from the Moody’s report, which uses data from the Office of the Comptroller of the Currency:
Banks may not be back in the Wild West of lending that they roamed six years ago, but the uptick has raised eyebrows among regulators. Indeed, regulators at the OCC and the Federal Reserve have expressed concern about the rise of leveraged loans provided to private equity firms, the Wall Street Journal reports (paywall).