WASHINGTON — Concerns about leveraged lending risks are still just academic, but a vigorous debate about the threat posed by corporate credit is already in high gear. Commentators, Democratic lawmakers and other observers are increasingly sounding the alarm that growth in credit to highly leveraged firms could spur the next crisis. But large financial institutions, GOP lawmakers and even Trump-appointed regulators counter that the risk of leveraged lending losses triggering a 2008-like downturn is still remote. "We must consider the possibility that" leveraged loans are a systemic problem, said Rep. Gregory Meeks of New York, the chairman of the House Financial Services subcommittee on consumer protection and financial institutions. Both sides were on full display Tuesday during a hearing before subcommittee, which heard from witnesses urging the financial services industry and policymakers to act now to avoid potential systemic shocks. Meeks noted that the issue has appeared to demand the attention of the Financial Stability Oversight Council, which discussed leveraged lending at a closed-door meeting last week. "Because of their explosive growth and rapidly eroding underwriting standards, leveraged loans have increased vulnerability in the financial system. In an economic downturn, this vulnerability has the potential to disrupt the availability of credit and reduce economic output," Gaurav Vasisht, senior vice president of the Volcker Alliance, said in testimony prepared for the consumer protection and financial institutions subcommittee. "To address this weakness, regulators should take the necessary steps to better understand and mitigate the risks of this complex market." But GOP members pumped the brakes, echoing concerns by many that leveraged lending risks are being overblown. They note that the commercial banking sector is shielded from a direct hit, since most of the leveraged lending risk is in the nonbank sector, and financial firms have built up capital since the 2008 crisis to be able to absorb losses.leveraged lending risk is “building in contrast to the portfolio overall.” The federal bank regulators have flagged risks associated with leveraged lending for years, but senior officials, to some degree, have downplayed those risks posed to commercial banks since most of the asset growth has been at nonbanks. Last year, Comptroller of the Currency Joseph Otting notably said banks “really kind of stayed on the rails” in leveraged lending. Last month, Federal Reserve Board Chairman Jerome Powell said the financial system can withstand losses from business debt concerns. “In public discussion of this issue, views seem to range from ‘This is a rerun of the subprime mortgage crisis’ to ‘Nothing to worry about here,’ ” Powell said. “At the moment, the truth is likely somewhere in the middle.” Yet the agencies still point to heightened risks. A December report by the Office of the Comptroller of the Currency on risks in the industry said “deterioration in corporate bond and loan markets may affect supervised institutions more profoundly than in previous periods.” “In this environment where there are very high and elevated leverage levels being done outside the banking industry, it’s important for banks to look at a company’s suppliers or a company’s distribution network and understanding the leverage levels that are important partners in executing their business plan,” Otting said when the risk report was released. But Gerding criticized a decision by the OCC last year to stop enforcing the bank regulators' 2013 interagency guidance on leveraged lending. The agency's decision followed a finding by the Government Accountability Office that the guidance was effectively void because it should have been issued as a formal rulemaking under the Congressional Review Act. “The comptroller’s decision degraded the ability of federal regulators to monitor the buildup of risk in the leveraged loan market — and, by extension, the CLO market which securitizes those loans — and banks’ exposure to that risk," Gerding said.