There are a number of errors in this article, and there are important things that articles like this fail to mention: - the loans aren't made by the banks and

There are a number of errors in this article, and there are important things that articles like this fail to mention: - the loans aren't made by the banks and then shifted, they are more often sold to investors without the bank assuming any of the loan themselves (it's called loan syndication). The bank simply acts as the role of arranger. - the Japanese investor base is mostly in the most senior part of the capital structure - for similar credit ratings CLOs have far lower default rates than for equivalent corporates. It's something like 2-3% in the B and BB rated tranches through the crisis - the average piece of CLO equity returned something like mid-single % digit returns if held through the whole of the financial crisis - the paragraph on credit default swaps is a distraction. No CLOs use credit default swaps, and certainly no one sells credit default swaps which reference CLO tranches. This happened prior to the financial crisis through synthetic-CLOs but these don't exist anymore. Sometimes investors in CLOs use credit default swaps against an index of credits (like XOVER for instance), but this doesn't really work as a CLO hedge The facts are that many lessons have been learned since the crisis and people aren't doing the same things they did back then. What can be said is that there is a race to the bottom in terms of loan covenants diminishing, but this is driven by larger demand for loans than supply resulting in borrowers achieving looser document terms. The drivers of this are often the law firms that work on behalf of the borrowers who promise being able to achieve looser and looser language with a view to winning the business. Unfortunately the lenders have a weak hand in this situation as they are many chasing few assets and find it difficult as individual institutions against a syndicating bank and borrower who have full information and can play lenders off against each other.