We’ve warned for some time that the debt loads on fracking companies were substantial, and had accounted for a high percentage of new lending in the US over the last five years. We also warned that the fall in energy prices, which was widely ballyhooed as a boon for the economy, would not only hit energy companies, but would have knock-on effects by lower revenues and employment in oil/shale boom towns, employment cuts at oilfield service providers, and a downturn in real estate prices in affected communities, all of which could result in loan losses at regional banks.

And remember the big rule of investing: tail risk is much greater than you assume.

From the International Business Times:

A financial watchdog set off the alarm bells on corporate debt Wednesday in its annual report to Congress. With companies feeling growing pressure from painful exchange rates and energy prices, the U.S. is at a higher risk of seeing a wave of corporate defaults, the report said. The report from the Office of Financial Research, a division of the Treasury Department, listed credit risk as one of the top three financial stability dangers facing the economy in 2016…. It’s not just oil companies that are exposed, however. Regional banks that lend to the energy industry could suffer as a result of a default wave, the OFR report noted, adding that “the ultimate magnitude of losses in these industries and regions is uncertain.”

Moody’s had elevated the debt default concern by downgrading 175 energy-related companies last Friday. Standard & Poors followed suit quickly, but not with a raft of downgrades, but a big warning and a whack at the one-time fracking darling Chesapeake Energy. From OilPrice: