World News

U.S. regulators discuss market conditions, financial resilience as coronavirus spreads

By Katanga Johnson and Pete Schroeder

WASHINGTON (Reuters) – The U.S. Treasury Department on Tuesday stepped up its response to growing fears the coronavirus could plunge the stock market into bear territory and have ripple effects across the financial system, convening an unscheduled call between the country’s top regulatory officials.

Treasury Secretary Steven Mnuchin, Federal Reserve Chairman Jerome Powell, Securities and Exchange Commission Chairman Jay Clayton, and other top officials on the call “shared updates on the resilience of the markets and the economic impact,” of the virus, the Treasury said Tuesday afternoon without elaborating.

The Treasury also confirmed it would convene a public meeting of the Financial Stability Oversight Council (FSOC), a panel of regulators created following the 2008 financial crisis to guard against systemic risks, on March 23.

The developments mark the latest sign the U.S. government is escalating its response to the threat the coronavirus could spark a global recession. They came as U.S. lawmakers met with President Donald Trump to discuss other potential policy responses to support the economy.

The White House is due on Wednesday to meet with senior Wall Street bank executives, including from Goldman Sachs <GS.N>, Wells Fargo <WFC.N> and JPMorgan <JPM.N>, to discuss what more the government could do to arrest financial disruption.

After plunging again on Monday and triggering a 15-minute trading halt, stocks swung wildly on Tuesday before closing up nearly 5% as investors pinned their hopes on a robust policy response.

“Collectively the regulators are in routine contact with institutions we regulate and have been ensuring prompt responses to their inquiries as well,” Kathy Kraninger, director of the Consumer Financial Protection Bureau and a voting member of FSOC told lawmakers earlier on Tuesday when asked how agencies were responding.

“There is already extensive communication,” Kraninger added during the scheduled hearing on the agency’s agenda.

One person familiar with the regulatory discussions, but who was not on the call, said the agencies have been concerned about banking system exposure to high levels of corporate debt and leveraged lending.

“As economic activity slows, the ability of these corporate borrowers to meet their obligation and if not the potential blowback for the lenders and the financial institutions could be significant,” said the source.

The leveraged loan market has doubled in size over the last decade, standing at roughly $1.1 trillion, according to regulatory data. In October, the International Monetary Fund warned that companies might struggle to pay interest on as much as $19 trillion in corporate debt in a significant economic downturn.

“We’ll see how this plays out … but there’s a potential here for significant disruption,” the source said.

(Reporting by Katanga Johnson and Pete Schroeder; Editing by Cynthia Osterman and Tom Brown)