Last week Chairman Bernanke used the phrase "reaching for yield" in a speech. To some this might be welcome, as it at least means that the Fed is aware of the building risk in the financial system. However, bankers are also aware that the Federal Reserve is a regulator, so a focus on who is reaching how far for yield could lead to some uncomfortable exams.
American Banker also has an article up (Low Yields, Loosening Terms Raise Risk for Banks: Moody's) that summarizes Moody's opinion that banks are stretching on both terms and credit standards:
A combination of low yields and loosening terms may be setting banks up for trouble in the event of an economic downturn, one of the nation's top credit ratings agencies said Monday.
Nearly two-thirds of banks with assets of more than $20 billion say they have lowered pricing on loans to large and middle-market businesses in recent months, while nearly half of lenders reported relaxing loan conditions, up from 30% in January, according to the Federal Reserve's latest survey of senior loan officers.
The combination, which comes amid an uptick in commercial and industrial lending, increases risk for banks, says Moody's Investors Service in a report published Monday.
Be careful out there - your choices are generally between paltry yields or too much risk. Let us know if we can help.