Regulators step up scrutiny of risky loans by Wall Street banks

NEW YORK • US federal regulators have started to intensify their scrutiny of risky company loans extended by Wall Street's biggest banks, just weeks after completing an annual audit of corporate lending, according to people with knowledge of the matter.

JPMorgan Chase, Deutsche Bank and Credit Suisse Group are having their lending practices examined again, said the sources, who asked not to be identified. Canada's Toronto-Dominion Bank is also under review, they said. The move is the first step towards more frequent reviews of all lenders, the people said.

Banking regulators have been trying for more than two years to curb excessive risk-taking by Wall Street's biggest lenders as they seek to limit bank exposure to loans to heavily indebted companies.

Their campaign is back in the spotlight as investors shy away from highly levered buyout loans. This week, a group of lenders led by Bank of America and Morgan Stanley postponed a US$5.5 billion (S$7.8 billion) debt package backing the biggest leveraged buyout of the year after struggling to sell the debt to investors."Eventually a day of reckoning arrives," US Comptroller of the Currency Thomas Curry said in a speech this month, referring to deteriorating lending standards. He cited relaxed credit underwriting and increased loan concentrations as concerns, with banks stepping up "their participation in riskier products, such as leveraged lending".

Starting next year, the so-called shared national credit review process that examines risk in the largest and most complex credits shared by multiple financial institutions will be carried out twice a year instead of once, people familiar with the matter have said.

The Federal Reserve, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corp have already completed this year's joint annual credit review of Wall Street underwriters' loan portfolios. The regulators again pushed banks to comply with the leveraged lending guidelines first published in 2013. They concluded this month that leveraged lending by US banks remains too risky, and that deals originated in the past year with a high level of borrowed money had weak structures.


A version of this article appeared in the print edition of The Straits Times on November 21, 2015, with the headline 'Regulators step up scrutiny of risky loans by Wall Street banks'. Print Edition | Subscribe