US regulators issued the first risk controls in 12 years for lending to faltering companies. Banks will now have to hold reserves to buffer for potential losses on the larger pools of leveraged loans.
Banks essentially had the year to prepare for harsher leveraged loan definitions, some of which were eased, noted Ernie Patrikis, a partner at White & Case LLP. The regulators feared reverting to pre-crisis easy lending and were unlikely to backpedal much, he added.
"There is a regulatory cost, so borrowers will be paying more," said Patrikis. "But I really don’t see this as a shocking announcement that will have a material impact on credit."