Leveraged Lending

Risks Associated with Leveraged Lending

For purposes of the OCC’s discussion of risk, examiners assess banking risk relative to its impact on capital and earnings. From a supervisory perspective, risk is the potential that events, expected or unanticipated, may have an adverse impact on the bank’s capital and earnings. The OCC has defined nine categories of risk for bank supervision purposes. These risks are credit, interest rate, liquidity, price, foreign exchange, transaction, compliance, strategic, and reputation. These categories are not mutually exclusive; any product or service may expose a bank to multiple risks. For analysis and discussion purposes, however, the OCC identifies and assesses the risks separately. The primary risks associated with leveraged lending are credit, price, liquidity, reputation, compliance, and strategic.

Previous: Distributions and Bridge Financing Next: Credit Risk