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Regulation

SEC’s Jackson says congressional action needed on leveraged loans

The U.S. Securities and Exchange Commission (SEC) seal is displayed outside headquarters in Washington, D.C.

SEC Commissioner Robert Jackson Jr. is calling on Congress to give the agency more latitude to monitor risks associated with the leveraged loans market.

"At the SEC, given that we're the principal market regulator, it might be time for Congress to think about giving us greater authority and visibility into this area," Mr. Jackson said in a phone interview Thursday.

Mr. Jackson's concerns center around the fact that leveraged loans transaction are not treated like securities. In 2018, the leveraged loan market totaled $1.3 trillion, according to the International Monetary Fund.

"The market has grown at remarkable speed, and that's not necessarily a bad thing, but it is a corner of the market where people are thinking of these things almost like securities but we don't treat them as securities," Mr. Jackson said. "They're not subject to settlement rules of securities, they have a very different liquidity profile and I want to be sure that investors understand that and that we at the SEC have the data and rules we need so that we understand it."

There are several regulators, including the Federal Reserve, Federal Deposit Insurance Corp., Financial Stability Oversight Council and SEC, that have an interest in leveraged loans. Mr. Jackson said it's time for Congress to "make clear which agency should be the central one to oversee that market," and noted that the SEC would make sense, given its securities expertise.

In testimony before the House Financial Services Committee in February, Federal Reserve Chairman Jerome Powell warned that companies with leveraged loans can pose a risk to the economy. "If there is a downturn they will be less able to carry out their roles in the economy and that may have an amplification effect on a downturn," he said.

Now is the time to act on this issue, Mr. Jackson said: "Whatever we do in this area, what we need is for there to be one regulator with visibility across the issues so that we can have one place that has a clear view of what the liquidity in the market really looks like."