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OCC Bulletin 2013-9
March 22, 2013
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Chief Executive Officers of All National Banks, Federal Savings Associations, and Federal Branches and Agencies of Foreign Banks; Department and Division Heads; All Examining Personnel; and Other Interested Parties
The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (collectively, the agencies) have jointly issued the attached supervisory guidance on leveraged lending, which applies to all national banks, federal savings associations, and federal branches and agencies of foreign banks (collectively, banks). This guidance was published in the Federal Register on March 22, 2013, and replaces similar guidance issued in April 2001 (2001 guidance).
Since the 2001 guidance was issued, the agencies have observed tremendous growth in the volume of leveraged credit, driven in part by demand from nonregulated investors. The pipeline of aggressively structured commitments grew rapidly, and management information systems (MIS) were at times less than satisfactory. Many banks found themselves holding large pipelines of higher-risk commitments when buyer demand had diminished significantly. In addition, debt agreements frequently included features that provided limited lender protection and contained aggressive capital structures.
In light of the market’s evolution, the agencies have replaced the 2001 guidance with the updated 2013 leveraged lending guidance, which focuses on the following key areas:
Banks that engage in leveraged lending transactions should consider and implement all applicable aspects and sections of the 2013 guidance. Examiners will be critically evaluating the above factors when assessing a bank’s risk management framework, as well as determining credit classifications on leveraged borrowers.
This guidance is effective May 21, 2013.
For More Information
Any questions regarding the 2013 guidance should be directed to Lou Ann Francis, National Bank Examiner and Technical Expert, Credit Risk Policy Division, at (202) 649-6406 or (202) 649-6670.
Deputy Comptroller for Credit and Market Risk