Leveraged loans: banks losing to the shadow banks

New York

IN its effort to limit leveraged loans, the government is finding once again that regulating the financial industry is like a game of Whac-a-Mole, with new unregulated players popping up to fill the risky gaps.

Leveraged lending is associated most commonly with buyouts by private equity firms, which borrow significant sums to purchase public companies. Under the calculus of such deals, more debt usually translates into greater returns for the private equity firms.