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Tuesday, March 27, 2012

Proposed Revisions to Leveraged Finance Guidance

The federal banking agencies have proposed revised inter-agency guidance that details expectations for the sound risk management of leveraged finance activities. The guidance refocuses attention on five key areas: establishing a sound risk-management framework; underwriting standards; valuation standards; pipeline management; and reporting and analytics.

In a press release the agencies stated:
The agencies observed tremendous growth in the volume of leveraged credit leading up to the crisis and in the participation of non-regulated investors. While there was a pull-back in leveraged lending during the crisis, volumes have since increased, while prudent underwriting practices have deteriorated.
The agencies stated community banks are not expected to be affected by the guidance, which would apply to financial institutions substantively engaged in leveraged lending activities.

Comments are due June 8th, 2012.

Read the Agencies' press release.
Read the proposed guidance.

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