Leveraged Lending

Compliance Risk

Compliance risk is the current and prospective risk to earnings or capital arising from violations of, or non-compliance with, laws, rules, regulations, prescribed practices, or ethical standards. Compliance risk also arises in situations where the laws or rules governing certain bank products or activities of the bank’s clients may be ambiguous or untested. This risk exposes the institution to possible fines, civil money penalties, payment of damages, and the voiding of contracts. Compliance risk can lead to a diminished reputation, reduced franchise value, limited business opportunities, lessened expansion potential, and lack of contract enforceability.

Many larger banks originate, arrange and sell leveraged loans, in various capacities, through their syndication activities. Failure to meet the contractual and fiduciary responsibilities arising from these legal arrangements exposes banks to substantial penalties and civil liability.

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