| WASHINGTON, June 25
WASHINGTON, June 25 A top U.S. regulator warned
of the dangers of banks attracting clients by easing loan
standards as the economy ticks up after the financial crisis.
Loosening underwriting standards was a problem in leveraged
lending - a type of loan often used for private equity firms,
which use the debt to buy companies, the Office of the
Comptroller of the Currency said.
It was also happening in indirect auto loans that banks
provide through car dealers, and in commercial loans.
"Bankers are speaking out increasingly regarding their
concern with competitive pressures. Given these trends, the OCC
will increase its attention on underwriting standards," the bank
regulator said in a semi-annual report.
Leveraged loans were rising closer to a critical benchmark
identified by the OCC and the Federal Reserve, which also
oversees banks, the report showed.
The size of the leveraged loans was, on average, 4.7 times
the core profit - or earnings before interest, taxes,
depreciation, and amortization of goodwill (EBITDA) - of the
companies that the borrowers bought with the money.
That level was last exceeded in 2007, the OCC said, and was
getting closer to the 6 times EBITDA the bank regulators have
identified as a red flag indicating undue risk.
Rising interest rates posed another threat for banks, who
have lent money in longer-term loans to earn more money, but may
be facing a rapid withdrawal of deposits once interest rates
start rising as clients take their money out of cash.
(Reporting by Douwe Miedema; Editing by Chizu Nomiyama)