Risky Loans Shunned by Banks Are Booming in Wall Street’s Shadow
By Christine Idzelis and Craig Torres

Regulators’ efforts to rein in Wall Street’s biggest banks are in danger of backfiring. Guidelines aimed at strengthening lending standards are shifting the market for high-yield credit to less-supervised loan funds, raising alarm this week from the Financial Stability Oversight Council…. Karen Shaw Petrou, managing partner at Federal Financial Analytics Inc., a Washington consulting firm whose clients include the world’s largest banks, said non-bank lenders haven’t been tested by a recession or higher interest rates. Their loan growth is being driven by “an absence of regulation.” “Nonbanks may fund a lot of corporate credit because they can — at least if market volatility allows,” Petrou said in a speech in October. The absence of rules “clears take-off.” “Safe landing?” she said. “That’s another question.”