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Wall Street Funds Nonbanks’ Risky Lending

Shift in financing for middle-market companies still leaves banks at risk.

By Christine Idzelis and Craig Torres, Bloomberg | Updated on May 22, 2015

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. Because the funds don’t have depositors, some of their money comes from Wall Street banks, leaving systemically important institutions exposed to risks regulators hoped to avoid.

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