When the largest American banks reported earnings last month, analysts peppered executives with questions over the lenders’ exposure to the energy sector. Wells Fargo & Co. reported stashing $1.2 billion in reserves to cover potential losses in $17 billion in loans. JPMorgan Chase & Co. set aside $124 million for exposure to the oil and gas space, which chief financial officer Marianne Lake called “the biggest area of stress.”
It’s not just the bank loans, however, that could snap and sting the financial system. Regulators have recently sounded alarms over the increasing share of risky lending carried out by nonbanks, or so-called shadow lenders. In a recent report, the Treasury Department’s Office of Financial Research noted that two-thirds of the highest-risk loans — those with greater-than-average leverage in comparison with company assets — were held by nonbanks.
“We don’t know how deep the hole goes in terms of leverage,” said Mark Friedgan, investor and co-founder of Chicago retail energy supplier Eligo Energy.
Still, despite the buildup of risky assets in shady corners of the financial world, today’s energy market woes don’t line up perfectly with the subprime-mortgage crisis of 2007-08, which was triggered by the collapse in housing prices. U.S. household debt in 2007 totaled $10.5 trillion, more than four times the $2.5 trillion currently locked up in oil and gas debts.
Read the full article at http://www.ibtimes.com/oil-glut-2016-financial-crisis-lurking-hobbled-energy-market-2289326