Excesses in the buying of bank leveraged loans by asset managers from banks may be systemically risky, the Treasury Department’s Office of Financial Research said in its annual report Tuesday.

As banks moved to shrink their leveraged loan holdings to reduce risk and comply with the Volcker Rule, asset managers and pension funds have stepped in to buy.

The agency noted asset managers are purchasing an increasing share of leveraged loans on behalf of investors in hedge funds, high-yield bond mutual funds, and collateralized loan obligations.

“The growing role of asset management products in funding leveraged lending adds urgency to discussions about structural vulnerabilities, such as redemption, fire sale and maturity transformation risks in credit funds, and whether and to what extent they can contribute to financial stability risks,” the report said.

OFR added continuing concentrations of money market fund assets with a few large asset managers may require more intense monitoring of potential cash reallocation.