WASHINGTON — Banking regulators said Monday they are looking for feedback on proposed changes to guidance issued in 2001 on leveraged finance.
The Federal Reserve Board, the Federal Deposit Insurance Corp., and the Office of the Comptroller of the Currency are seeking to revise rules that would focus on five key areas including underwriting standards and creating a sound risk-management framework.
During the crisis, there was a significant pull back in leverage lending, but volumes have since increased while underwriting standards have deteriorated. Regulators' guidance would apply to transactions whereby a borrower has financial or cash flow leverage that "significantly exceeds" industry norms measured with a variety of tools.
"Leveraged finance is an important type of financing for the economy, and banks play an integral role in making credit available and syndicating that credit to investors," regulators said in a joint statement. "It is important that banks help provide financing to creditworthy borrowers in a safe and sound manner."
Other areas of focus will include valuation standards, pipeline management, and reporting and analytics.
Comments are due by June 8.