Fed Says Banks Failing To Observe Buyout Leverage Limits

May 14 2014 | 10:11am ET

The Federal Reserve has issued a stark warning to banks: Observe the buyout leverage limits it introduced with the Office of the Comptroller of the Currency last year, or face further action.

“Judging from aggregate market data, it appears that many banks have not fully implemented standards set forth,” Todd Vermilyea of the Fed’s Division of Banking Supervision and Regulation said. “A lot of work has been done to date by agencies to assess compliance with the guidance, but clearly much more work remains to be done and stronger supervisory action may be needed.”

While the OCC has publicly warned banks on the rules, which advise banks not to issue senior debt for buyouts worth more than six times a company’s cash flow, the Fed has until now taken a quieter approach, sending private letters to banks.

Still, the Fed has indicated it will go easier on the banks it regulates—Goldman Sachs, Morgan Stanley and foreign firms—than will the OCC, which has proclaimed a “no exceptions” policy. By contrast, the central bank said it would allow the banks under its purview to participate in a small number of such deals, totaling no more than 2% of their leveraged-loan book.


In Depth

Q&A: Star Mountain's Brett Hickey On Investing In 'The Growth Engine Of America'

Sep 22 2017 | 5:06pm ET

Lower middle-market companies form the economic fabric of the nation, but they can...

Lifestyle

CFA Institute To Add Computer Science To Exam Curriculum

May 24 2017 | 9:25pm ET

Starting in 2019, financial industry executives sitting for the coveted Chartered...

Guest Contributor

Don’t Overlook These 6 Hybrid Cloud Concerns

Sep 14 2017 | 6:27pm ET

Cloud-based technology solutions have made tremendous inroads into the alternative...

 

From the current issue of

With NFL season on the horizon, it’s time to take a look at our Fantasy Football value picks. Last year, we nailed it on Drew Brees, Jordan Howard, Frank Gore and Dwayne Allen. We missed pretty badly on Duke Johnson, Demaryius Thomas, Mohammed Sanu and Eli Manning.