Caroline Crenshaw is using broadly syndicated loans to illustrate what she believes to be the harm done by limiting the reach of the U.S. Securities and Exchange Commission.
Crenshaw, a Democrat nominated to serve on the SEC in 2020 by former President Donald Trump, talked about broadly syndicated loans last week in Washington, during an appearance at an event organized by the Center for American Progress.
"Much of this market is not subject to meaningful regulation, and investors are being put at risk," Crenshaw said, according to a transcript of her speech posted on the SEC website. "In addition, I am concerned that systemic financial issues are lurking in the market, and that if these instruments are not monitored more closely, the risk to the financial system itself will continue to grow."
What it means: Crenshaw's remarks could cause some investors to take another look at their BSL holdings.
They could also show what kinds of arguments the SEC could use if tough times cause problems for assets now beyond the SEC's regulatory reach.
Broadly syndicated loans: A BSL is a large loan made to a big company and syndicated by a bank to investors.
Analysts at the National Association of Insurance Commissioners' Capital Markets Bureau track them together with other leveraged bank loans, or loans made to borrowers with relatively low credit ratings, but in deals structured in such a way that the lenders are supposed to get paid back before most other creditors.
The NAIC analysts reported that banks had issued a total of $1.4 trillion in leveraged loans in 2017, and that about 87% of the loans were BSLs.
In 2022 about 55% of U.S. insurers' $117 billion in bank loan holdings consisted of leveraged bank loans. BSLs and other bank loans accounted for about 2% of U.S. insurers' assets.
Crenshaw's views: Crenshaw gave BSLs as an example of an asset that has been defined not to be an SEC-regulated security.
