Article from The Atlantic on CLO's and the health of banks.

WABAC

Dinky linky.

The point being that they are the new CDO's. And banks own more of them than may be good for their health.

Since 2008, banks have kept more capital on hand to protect against a downturn, and their balance sheets are less leveraged now than they were in 2007. And not every bank has loaded up on CLOs. But in December, the Financial Stability Board estimated that, for the 30 “global systemically important banks,” the average exposure to leveraged loans and CLOs was roughly 60 percent of capital on hand. Citigroup reported $20 billion worth of CLOs as of March 31; JPMorgan Chase reported $35 billion (along with an unrealized loss on CLOs of $2 billion). A couple of midsize banks—Banc of California, Stifel Financial—have CLOs totaling more than 100 percent of their capital. If the leveraged-loan market imploded, their liabilities could quickly become greater than their assets.

There's more at the link. Check it out. Buy a subscription if you can afford it.

davfor

@WABAC Thanks for the dinky linky. This article provides a good discussion regarding how CLOs are structured. It also lays out a scenario in which banking sector investment choices could potentially put our financial system at risk of major disruption once again.

Shostakovich

I really like The Atlantic. Great collection of content, and generally less partisan than most other publications. I re-subscribed during the quarantine(s) and really like their online edition.

Their COVID coverage is broad (vaccines, school opening, economics, social inequality), and I believe much of it is available for free.

FWIW.