FED adopted the proposal to extend for three years, without revision, the recordkeeping provisions associated with guidance on leveraged lending (FR 4203; OMB No. 7100-0354). FED did not receive any comments to the related consultation, the comment period for which expired on September 03, 2019. The reporting frequency of FR 4203 is occasional and there are no reporting forms associated with this information collection.
The guidance outlines high-level principles related to safe-and-sound leveraged lending activities. The guidance includes a number of voluntary recordkeeping provisions that apply to financial institutions engaged in leveraged lending activities, for which FED is the primary federal supervisor; these financial institutions include bank holding companies, savings and loan holding companies, state member banks, and state-chartered branches and agencies of foreign banks that engage in such activities. The guidance states that institutions should maintain:
- Well-defined underwriting standards that, among other things, define acceptable leverage levels and describe amortization expectations for senior and subordinate debt
- Sound management information systems that enable management to identify, aggregate, and monitor leveraged exposures and comply with policy across all business lines
- Strong pipeline management policies and procedures that, among other things, provide for real-time information on exposures and limits and exceptions to the timing of expected distributions and approved hold levels
- Guidelines for conducting periodic portfolio and pipeline stress tests to quantify the potential impact of economic and market conditions on the institution's asset quality, earnings, liquidity, and capital
Many community banks are not subject to the guidance because they do not engage in leveraged lending. The limited number of community and smaller institutions that are involved in leveraged lending activities may discuss with FED how to implement these collections of information in a manner that is appropriate for the complexity of their exposures and activities. The estimated number of respondents for this information collection is 40.
Related Link: Federal Register Notice
Keywords: Americas, US, Banking, FR 4203, Leveraged Lending, Information Collection, Credit Risk, Reporting, FED
Scott is a Director in the Regulatory and Accounting Solutions team responsible for providing accounting expertise across solutions, products, and services offered by Moody’s Analytics in the US. He has over 15 years of experience leading auditing, consulting and accounting policy initiatives for financial institutions.
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