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Student working on the Bloomberg terminals in the Nottingham Business School Business Lab on the City Campus at Nottingham Trent University

Leveraged Lending, Risk Taking and Financial Stability

  • School: Nottingham Business School
  • Starting: 2022 / 2023
  • Funding: UK student / EU student (non-UK) / International student (non-EU) / Self-funded


Ultra-low interest rates have fuelled a surge in leveraged loans in recent years, and regulators are concerned that large debt loads could become unmanageable, accelerating the decline of heavily indebted companies and potentially exposing banks to losses. The coronavirus (COVID-19) pandemic has confirmed these regulatory concerns regarding the high risks associated with leveraged transactions. A 2022 joint ECB and BoE letter noted that “The market sell-off at the onset of the pandemic, which centred around non-financial corporates, particularly affected the most vulnerable firms. While that sell-off and the immediate consequences were ultimately curtailed by decisive public sector support, that episode highlighted the vulnerabilities of highly leveraged corporates and their dependence on the market and continued economic and revenue growth for their survival.”

Nevertheless, the stock of leveraged loans has increased to more than $4 trillion for the first time while, underwriting standards and lender protection have declined owing to the rise in covenant-lite leveraged loan volumes. Consequently, regulators have identified leveraged finance as a key area of vulnerability that requires increased scrutiny. For example, the European Central Bank (ECB) and Bank of England (BoE) have made leveraged finance a key supervisory priority for 2022-24 in order to ensure that banks manage the associated risks appropriately. Regulators expect lenders, especially systemic institutions to adopt and maintain sound credit risk management policies and procedures accordingly. These include a reduction in risk taking and robust stress testing of the Leveraged Loan portfolio. Regulators are also considering the application of specific Pillar 2 capital charges to address individual cases of portfolios featuring increased leverage transactions. This marks an escalation of regulators’ efforts to rein in risk-taking with this type of lending.

This project aims

  • to examine the nexus between banks’ engagement in corporate leveraged lending and their risk-taking behaviour
  • to test the impact of such lending on systemic risk.
  • investigate the impact of regulatory intervention in leveraged lending on bank and non-bank lending activity.

The outcome of this research would be of importance to policy makers seeking to identify and quantify the impact of leveraged loan transactions. Furthermore, the findings of this project may be considered by the management of the financial institutions when setting their risk appetite and policies against such transactions.

Application Enquiries:

Entry qualifications

An applicant should normally hold a Master’s degree at distinction or merit level of a UK university or an equivalent qualification. International students will also need to meet the English language requirements - IELTS 6.5 (with minimum sub-scores of 6.0). Applicants who have taken a higher degree at a UK university are normally exempt from the English language requirements.

How to apply

Please visit our how to apply page for a step-by-step guide and make an application.

Application deadline: 15th August for 1st Oct 2022 start date, or 15th Nov for 1st Jan 2023 start date.

Fees and funding

This opportunity is for self-funded PhD students. Applicants are encouraged to apply for external funding and we will support this process if and when required. Find out about fees and funding for PhD projects.

Guidance and support

Find out about guidance and support for PhD students.

Still need help?

Dr Vangelis Tsiligiris