The Federal Reserve Bank of New York issued a Staff Report this week titled "Macroprudential Policy and the Revolving Door of Risk: Lessons from Leveraged Lending Guidance,” that studied the effects of the March 2013 Interagency Guidance on Leveraged Lending on systemic risk.

The Staff Report found that only the largest regulated banks reduced their leveraged lending activity significantly. The Staff Report also found that leveraged lending has migrated from large, regulated banks to nonbanks, and that nonbanks have increased use of bank funding to finance the growth of their leveraged lending business. Significantly, the Staff Report concluded that this migration was not accompanied by a similar reduction in risk in the regulated banking sector. The Staff Report further concluded that nonbank lenders took advantage of the guidance to increase significantly their market share in the leveraged lending business. Nonbanks’ volume of leveraged lending as well as their market share (by volume) after the guidance more than doubled when compared to the pre-guidance years. It also found that this increase, despite being large, was accomplished predominately by extending more loans rather than larger loans.