WASHINGTON (3/22/13)--Federal bank regulators released updated supervisory guidance Thursday on leveraged lending, which they say has been increasing since 2009 after declining during the financial crisis. It is important that banks provide leveraged financing to creditworthy borrowers in a safe and sound manner, the guidance says.
The guidance is targeted to large banks. It applies to all financial institutions supervised by the Office of the Comptroller of the Currency, the Federal Reserve Board, and the Federal Deposit Insurance Corp. that engage in leveraged lending activities. The guidance does not apply to credit unions.
However, as the directive itself notes, the number of community banks with substantial involvement in leveraged lending is "small," and the agencies expect community banks to be largely unaffected by this guidance. In fact, it says, given that most leveraged lending transactions exceed $50 million, leveraged loans are held primarily by "very large or global institutions."
The regulatory guidance outlines:
The regulators defined leverage loans as those that involve:
Use the resource link to access the bank guidance.