Gaurav Vasisht Testifies Before House Committee on Financial Services

Tuesday, June 4, 2019

On June 4, Gaurav Vasisht, Volcker Alliance Senior Vice President and Director, Financial Regulation Initiatives, testified before the US House Committee on Financial Services in a congressional hearing on "Emerging Threats to Stability: Considering the Systemic Risk of Leveraged Lending." The Subcomittee on Consumer Protection and Financial Institutions, chaired by Rep. Gregory Meeks of New York, held the hearing to provide the Committee an opportunity to review what is known about leveraged lending, the tools available to regulators to identify and mitigate risks to the US economy and financial stability, recent regulatory actions, and potential legislative proposals.

A memorandum released by the Committee on Financial Services Majority Staff gave the following background and explanation for the hearing:

"As the U.S. economy recovered after the 2008 financial crisis, corporate debt has grown rapidly, reaching record levels, including as a share of GDP. Leveraged loans are a component of corporate debt and are defined broadly as loans extended to highly indebted, nonfinancial businesses. Generally, leveraged loans are originated by banks, who syndicate, or group the loans together, and then sell them to investors. It is estimated 62 percent of leveraged loans are purchased by collateralized loan obligations (CLOs), while 20 percent are sold to mutual funds, and the remaining are sold to other market participants. As described below, the leveraged lending market is relatively opaque with a range of potential risks policymakers should consider."

Mr. Vasisht's testimony contained three main recommendations for policymakers and regulators:

  1. First, regulators must better understand the leveraged lending market.
  2. Second, regulators must safeguard the banking system.
  3. Third, regulators should address risks outside the regulatory perimeter.

Along with Mr. Vasisht, witnesses included:

  • Erik F. Gerding, Professor of Law & Wolf-Nichol Fellow, University of Colorado Law School
  • Victoria Ivashina, Lovett-Learned Chaired Professor of Finance, Harvard Business School
  • Gregory Nini, Assistant Professor of Finance, LeBow College of Business, Drexel University

A video of the hearing can be watched here.

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