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Matt Levine

Regulators Try Something New, Tell Banks Not to Make Risky Loans

As you get more levered, your lenders will get less levered. This is arguably a law of finance, but it is also a law of law.

Here is a Wall Street Journal story about how the Office of the Comptroller of the Currency and the Federal Reserve have told banks that they can't make really leveraged loans, and how that makes life harder for private equity firms, whose lifeblood is really leveraged loans. This is controversial, because private equity firms don't like to be deprived of their lifeblood, and because banks don't like it when their regulators tell them what to do.

What is nice about the controversy is that the sides are entirely predictable. If you don't think that regulators should be telling banks how to run their businesses, at the specific loan level, then this is an obvious bad. Here is a guy who is disturbed: