We estimate that there is more than US$2.2 trillion in leveraged loans outstanding worldwide. This is larger than the most commonly cited estimate and comparable to US subprime before the crisis.
This analysis was presented to the FPC as part of their 2018 Q4 round.
Focus on leveraged lending as a potential source of financial stability risks has intensified recently.
But measuring the size of the leveraged loan market is complicated: there is no consistent definition of what a leveraged loan is.
The most commonly cited estimate of the market uses a figure of around US$1.3 trillion. This is the value of loans in indices that are used to track performance of the leveraged loan market. We think this underplays the true size of market. It only captures loans that are distributed to non-bank, institutional investors. And, within that, it mainly captures larger, more liquid loans.
When we account for smaller, less liquid loans, as well as lending facilities that are held by banks, the size of the market is more like US$2.2 trillion (Chart A). Around US$1.8 trillion of this is typically held by non-bank institutions.