Wall Street Lending Standards Remind Regulators of Crisis Run-Up

  • Biggest banks weakening credit underwriting, examiners say
  • OCC report finds trends `very similar' to before 2008 crisis

The biggest U.S. banks continue to weaken standards for some of the highest-risk lending in a trend similar to what their examiners saw before the 2008 financial crisis, according to a regulator’s report.

Competitive pressures have driven bankers to ease the standards for three years running, especially in leveraged lending, commercial real estate construction and credit cards, according to an annual survey of bank examiners who work for the Office of the Comptroller of the Currency. The report, released Wednesday by the OCC, said banks are also making more exceptions in their lending policies, a practice the examiners said has been adequately documented.

“We are seeing trends very similar to those that examiners reported just prior to the most recent financial crisis,” Jennifer C. Kelly, chief national bank examiner at the OCC, said in a statement. She said her agency’s examiners will be especially focused on the origination of new loans.

The annual survey looked at 95 firms whose loans totaled $5.1 trillion -- 94 percent of lending in the federal banking system. The report noted that the examiners expect credit risk to keep increasing in 2016.

The OCC and the other U.S. banking agencies issued a report last month that said leveraged lending remains too risky. Comptroller of the Currency Thomas Curry has delivered recent speeches saying his agency is increasingly concerned about concentrations of risk similar to those contributing to past crises.

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