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Brown to regulators: Be ready to discuss leveraged loans at hearing

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WASHINGTON — Banking regulators testifying in Congress this week must provide details on leveraged lending risks after Treasury Secretary Steven Mnuchin failed to "substantively" address lawmakers' concerns, a senior Democrat said Monday.

Sen. Sherrod Brown of Ohio, the ranking Democrat on the Senate Banking Committee, said he was not impressed with Mnuchin's responses to an April 11 letter about leveraged lending sent by the senator to members of the Financial Stability Oversight Council. (Mnuchin chairs the FSOC.)

In a letter dated Monday, Brown told four regulatory principals to “please be prepared to share detailed responses to the questions" contained in the April letter, when they appear before the Senate committee Wednesday.

"Banks' increased exposure to the leveraged loan market continues to concern me," Brown wrote to Federal Reserve Vice Chairman of Supervision Randal Quarles, Comptroller of the Currency Joseph Otting, Federal Deposit Insurance Corp. Chairman Jelena McWilliams and National Credit Union Administration Chairman Rodney Hood.

"Despite more and more evidence of risky corporate debt threatening our financial system, the agencies have not taken action," Brown added.

Brown told the regulators that his concern about leveraged lending was reinforced by a report last week, issued by the Fed, which showed a sharp increase in leveraged lending and said underwriting and credit standards have become less stringent over the last six months.

Brown's April letter had asked Mnuchin for information on any analyses of the leveraged lending market that the oversight council and its member agencies have performed in the previous two years, as well as any FSOC documents and meetings focused on leveraged lending risks.

The Treasury Department responded to Brown by saying that the FSOC's 2018 annual report included a recommendation to agencies to continue “to monitor levels of nonfinancial business leverage, trends in asset valuations, and potential implications for the entities they regulate in order to assess and reinforce their ability to manage severe, simultaneous losses in those markets.”

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Leveraged loans Financial regulations Corporate finance Sherrod Brown Randal Quarles Joseph Otting Jelena McWilliams Steven Mnuchin FSOC Senate Banking Committee