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Board of Governors of the Federal Reserve System

Board of Governors of the Federal Reserve System

The large increase in leveraged term loan originations in the syndicated lending market recently has called into question whether banks are sufficiently prepared for a significant downturn in economic activity stemming from problems in the corporate sector. Banks face risks from a variety of channels in this dynamic market, which has become more reliant on an originate-to-distribute model over the past two decades with the rapid growth of participation in these syndicated loans from institutional investors such as CLOs and mutual funds (Aramonte, Lee, and Stebunovs (forthcoming) and Irani, Iyer, Meisenzahl, and Peydro? (2018)).