SEC Cautions Against Market Risks Due to No-Deal Brexit, Transition From Libor Rate

The SEC Chairman, Jay Clayton, has cautioned against growth in corporate debt, boosted by accomodative monetary policies over several years. He estimated outstanding corporate debt in the US alone to be around $10 trillion, nearly 50% of its GDP.

While addressing an audience in New York on Monday, Clayton also expressed concern about a potential slowdown in returns on offer by the US corporate bonds market. Clayton stated, “We should recognize what prices and price movement in the corporate debt market are telling us. For example, on a total return basis, the upside has become more limited while the downside has not improved.”

Clayton also touched upon the Libor rate and how US banks should manage the risk of exposure to the lending benchmark rate in preparation for the 2021 deadline for transition. The SEC is also exploring ways to respond to any potential fallout from a no-deal Brexit on companies. A hard Brexit will leave companies with no time to prepare for the transition, which could expose them to additional risks.