Leveraged Lending

Loan Policy

A bank’s board of directors should adopt formal written policies which specifically address:

The definition of leveraged lending and risk objectives.

Loan approval requirements that require sufficient senior level oversight.

Responsibilities regarding the establishment of underwriting standards, distribution practices, and credit risk management controls.

Pricing policies that ensure a prudent tradeoff between risk and return.

The requirement for action plans whenever cash flow, asset sale proceeds, or collateral values decline significantly from projections. Action plans should include remedial initiatives and triggers for risk rating changes, changes to accrual status, and loss recognition.

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