Skip to main content

Newsroom

February 3, 2014

There Is Room for Leveraged Loans

Your article “Banks Sit Out Riskier Deals” (page one, Jan. 22) gives the impression that the banking regulatory agencies’ recent guidance on leveraged lending will hurt banking and business interests. Such a statement is opinion, not fact. The article offers a quote from a money manager as evidence of its adverse effects, saying that “micromanaging lending in this manner could . . . lead to . . . distorted pricing or limited supply.”

Here is a fact: Current regulatory guidelines leave plenty of flexibility to make leveraged loans. The price and supply distortions that do exist are created by the subsidy provided when the public safety net of the commercial banking system takes on the extreme leverage and increased risks embedded in making loans outside of the guidance.

The regulatory guidance referenced in the article represents basic and reasonable underwriting standards for firms that hold insured deposits and for which the taxpayer remains the ultimate underwriter of lending mistakes. I am pleased that we are acknowledging that neither the safety net nor the leverage it encourages is free.

Private equity is private, and the cost of the deal may finally accurately reflect the level of risk involved. This is one small step back toward free-market capitalism. There is no need for apologies or backpedaling from the regulatory agencies.

Thomas Hoenig

Vice Chairman

Federal Deposit

Insurance Corp.

Washington

***

Read Wall Street Journal letter here

 
In the News
Share

MEDIA REQUESTS

For media inquiries, please contact us at
press@bettermarkets.org or 202-618-6433.

Contact Us

For media inquiries, please contact press@bettermarkets.org or 202-618-6433.

To sign up for our email newsletter, please visit this page.

Name(Required)
This field is for validation purposes and should be left unchanged.

Sign Up — Stay Informed With Our Monthly Newsletter

This field is for validation purposes and should be left unchanged.

For media inquiries,

please contact press@bettermarkets.org or 202-618-6433.

Donate

Help us fight for the public interest in our financial markets, protecting Main Street from Wall Street and avoiding another costly financial collapse and economic crisis, by making a donation today.

Donate Today