On March 26, 2012, just as we were submitting our last column for publication, three federal bank regulatorsthe Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency (collectively, the Agencies)jointly proposed new guidelines (Proposed Guidance) for leveraged lending transactions conducted by the financial institutions subject to the Agencies’ supervision.1 If and when adopted, the Proposed Guidance would update and replace guidance that has been in effect for more than a decade. Today we briefly summarize the Proposed Guidance’s principal points and consider its potential effects on leveraged lending transactions.
Background
In April 2001, the Agencies and the federal Office of Thrift Supervision issued guidance regarding sound practices for leveraged finance activities (2001 Guidance).2 The 2001 Guidance addressed expectations for the content of credit policies, the need for well-defined underwriting standards, the importance of defining an institution’s risk appetite for leveraged transactions, and the importance of stress testing exposures and portfolios.
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