WASHINGTON Bank regulators said Friday they are going to ramp up reviews of leveraged lending after an annual exam found such loans are still a crux of criticized assets among large commercial credits shared by lenders.
Regulators released the results of that exam in their Shared National Credit review, which found that credit quality on large commercial loans shared by three or more banks remained high after seeing improvements in the three years prior to 2013. Still, regulators remained worried about leveraged loans, which made up more than 80% of all the "doubtful loans" and nonaccrual loans, among other criticized categories.
"Federal banking regulations require institutions to employ safe and sound practices when engaging in commercial lending activities, including leveraged lending," the Federal Reserve Board, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency said in a joint press release Friday. "As a result of the SNC exam, the agencies will increase the frequency of leveraged lending reviews to ensure the level of risk is identified and managed."
The agencies also released answers to frequently asked questions on the guidance it issued last year regarding leveraged loans. The FAQ is meant to address how such loans should be defined and supervisory expectations.
"The FAQ document is intended to advance industry and examiner understanding of the guidance, and promote consistent application in policy formulation, implementation, and regulatory supervisory assessments," regulators said.
The report looked at corporate loans exceeding $20 million that are shared by three or more lenders. Overall, criticized assets were at $340.8 billion, up from $302 billion a year before. Criticized assets were more than 10% of total commitments, about the same percentage as the 2013 findings, which are double that of pre-crisis levels, regulators said.