Centralized loan obligations, a little-known product made of bundles of loans to debt-laden companies, may be on the way out because of America’s new banking laws, says the New York Times.
CLOs are similar to collateralized debt obligations, which were made of the unstable mortgages that triggered the financial crisis. Like those debts, CLOs caused banks big losses in 2008, says the Times.
Under the new banking rules, CLOs are considered too risky, and fail to meet other technical criteria. But banks say that if they’re forced to divest the assets mid-sized businesses that rely on them for funding will suffer. U.S. lawmakers are holding hearings into weather the law should be changed.
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