Reports in Reuters say bankers and investors are calling on regulators to relax Leveraged Lending Guidelines as they seek to regain market share lost to some alternative lenders.
The publication relayed news on Monday (Nov. 27) that banks want regulators to pull back on the guidelines created in 2013 in an effort to mitigate risk in banks’ underwriting of leveraged loans. According to Reuters, the guidelines have not made an impact on loan volume or investor appetite. They have, however, changed the makeup of lenders in favor of less regulated players, including shadow lenders and direct lenders.
The guidelines were developed by the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation (FDIC) as part of broader efforts to reduce risk in the banking and lending markets.
One banker told the publication that pulling back on the guidelines could “change the banks’ financing deals, and you could start to see larger high-leverage deals get done.”
Bankers are bringing attention to the Guidelines just days after Moody’s released a report describing the U.S. leveraged loan market as “overheated.” Analysts advised that pulling back on regulation over the market would not lead to a deterioration of business lending conditions.
“When the market’s this overheated, saying that rule is not a rule will not really change anything,” said Moody’s Head of Leveraged Finance Christina Padgett in an interview with Reuters. “What we’re seeing today is as aggressive an environment as we’ve ever seen.”
Reports said a separate report released this month by Fitch similarly concluded that any changes to the guidelines will not likely have an impact on lending conditions.
Late last year, Reuters noted that the Trump administration signaled interest in easing leveraged lending rules. According to reports, if the U.S. were to pull back on leveraged loan regulations it would be in sharp contrast to efforts in Europe, where the European Central Bank recently implemented new guidelines on leveraged transactions.