US Federal Reserve Chairman Jerome Powell said corporate debt growth must be monitored, but so far has not posed a threat to the financial system.
The head of the central bank spoke at the financial market conference in Amelia Island on Monday , Florida, continues to assess the risks to the financial system a decade after the end of the financial crisis, which put the economy in the worst downturn since the Great Depression.
"Corporate debt does not pose the kind of increased risk to the stability of the financial system, which would cause widespread harm to households and businesses if conditions worsen," Powell said in prepared comments. "At the same time, debt could put borrowers under pressure when the economy slows down."
The corporate debt issue has surfaced as companies continue to use the Fed's low interest rates to leverage their balance sheets. [1
According to Powell, the Fed "continues to assess the potential amplification of such burdens on borrowers." However, he described these risks as "moderate" at that time.
His speech focused solely on risks to the financial system and did not address the monetary policy and intentions of the Fed in terms of interest rates.
The rise in debt could be the kind of threat to the system that caused the implosion of the subprime mortgage industry in 2008 with the collapse of the Lehman Brothers investment bank and the consequent liquidity drought on Wall Street and the rest of the financial sector.
At around $ 6.2 trillion, non-financial corporate debt is at record levels. Powell noted that individual companies that are in debt face financial stress. However, total debt to GDP ratio has consistently increased with other expansions and is not threatened with a bubble.
"In addition, banks and other financial institutions have significant loss absorbing buffers," he said. "The growth of corporate debt is not dependent on short-term funds, and the financing risk in the financial system is moderate overall."
The debts are also well paid, he said. The largest US banks hold a small amount of secured debt, which is used to bundle corporate bonds for sale to investors – $ 90 billion of the approximately $ 700 billion outstanding.