New York CNN Business  — 

US households have cleaned up their balance sheets from the Great Recession. Corporate America, on the other hand, is saddled with too much debt, Bank of America CEO Brian Moynihan told CNN Business.

“Consumers are in very good shape to borrow. Corporate debt is high,” Moynihan said during an exclusive interview from the sidelines of the Fortune Brainstorm Finance conference in Montauk, New York. “That’s an issue. It’s got to be dealt with.”

Although the Bank of America (BAC) CEO struck a bullish tone on the US economy — he doesn’t foresee an imminent recession — Moynihan singled out corporate debt as a concern.

Some US companies, Moynihan noted, have borrowed so heavily that they’re leveraged at up to 12 times earnings.

“When the economy slows down,” he said, “the reality is those companies will have a tough time.”

That debt doesn’t matter much as long as the economy is humming along. However, it could have a cascading effect during an economic downturn.

Federal Reserve Chairman Jerome Powell recently warned that Corporate America’s mountain of debt could make the next recession worse.

“A highly leveraged business sector could amplify any economic downturn as companies are forced to lay off workers and cut back on investments,” Powell said in a speech last month.

The ratio of nonfinancial corporate debt to GDP is the highest since records began in 1947, according to the Office of Financial Research, a Treasury Department bureau created after the 2008 financial crisis.

However, some believe these debt fears are overblown, in part because of historically low interest rates and minimal volatility in the economy. US companies also rely much less on short-term debt, which can vanish during a time of crisis.

Moynihan said that middle-market companies are borrowing from Bank of America more than ever before.

Borrowing ‘fueled’ activity

However, he suggested that potential bad loans will impact non-banks like loan funds and mutual funds, both of which have lent to risky companies.

“That’s not in the banking system,” Moynihan said.

He added that the restructuring process could be complicated by the fact that many loans are held by investors who view them as trading assets, rather than banks that “work with companies longer.”

Of course, some of that leverage has helped boost the American economy. That was the goal when the Fed slashed interest rates to near-zero after the Great Recession.

“The reality is that borrowing has fueled activity,” Moynihan said.

Record profits

And that borrowing has also helped contribute to the financial success of Bank of America. After getting into trouble during the 2008 crisis, Bank of America posted record profits in 2018 and again during the first quarter of this year.

Moynihan, who has been CEO since 2010, noted that early in his tenure Bank of America was losing more than half of its pretax earnings on settlements.

“We knew those would end,” he said.

Moynihan said he had confidence that Bank of America would turn itself around because of its earnings power, customer profile and overall capabilities.

“We never had any doubt,” he said.