This Alert describes the recently issued guidance (the “Guidance”) from the U.S. banking agencies instructing regulated domestic and foreign banks, subsidiaries and affiliates on implementing an acceptable infrastructure to comply with their safety and soundness responsibilities when engaging in leveraged lending. The effective date for the Guidance is May 21, 2013.

On March 22nd, the federal banking agencies issued the Guidance, which replaces regulatory interagency guidance in effect since 2001.1 The 2001 guidance, which is somewhat simplistic by today’s standards, established a risk management obligation on the part of banking institutions engaging in “leveraged financing.” The newly issued Guidance, however, enhances the obligations established by the 2001 guidance by imposing a very robust internal set of controls for all regulated institutions, including banks, thrifts, holding companies, foreign banks operating in the U.S., and related subsidiaries and affiliates.