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Did the Supervisory Guidance on Leveraged Lending Work?

Author

Listed:
  • Sooji Kim
  • Matthew Plosser
  • Joao A. C. Santos

Abstract

Financial regulatory agencies issued guidance intended to curtail leveraged lending?loans to firms perceived to be risky?in March of 2013. In issuing the guidance, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation highlighted several facts that were reminiscent of the mortgage market in the years preceding the financial crisis: rapid growth in the volume of leveraged lending, increased participation by unregulated investors, and deteriorating underwriting standards. Our post shows that banks, in particular the largest institutions, cut leveraged lending while nonbanks increased such lending after the guidance. During the same period of time, nonbanks increased their borrowing from banks, possibly to finance their growing leveraged lending activity.

Suggested Citation

  • Sooji Kim & Matthew Plosser & Joao A. C. Santos, 2016. "Did the Supervisory Guidance on Leveraged Lending Work?," Liberty Street Economics 20160516, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednls:87129
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    Cited by:

    1. Michael Gishkariany & David Norman & Tom Rosewall, 2017. "Shadow Bank Lending to the Residential Property Market," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 45-52, September.

    More about this item

    Keywords

    Leveraged lending;

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services

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