FR4203_20160613_omb

Supporting Statement for the
Recordkeeping Provisions Associated with Guidance on Leveraged Lending
(FR 4203; OMB No. 7100-0354)
Summary
The Board of Governors of the Federal Reserve System (Board), under delegated
authority from the Office of Management and Budget (OMB), proposes to extend for three years
without revision the voluntary Recordkeeping Provisions Associated with Guidance on
Leveraged Lending (FR 4203; OMB No. 7100-0354). The Paperwork Reduction Act (PRA)
classifies these recordkeeping requirements as an information collection and the PRA requires,
subsequent to implementation, the Board to renew these requirements every three years.
The interagency guidance outlines high-level principles related to safe and sound
leveraged lending activities, including underwriting considerations, assessing and documenting
enterprise value, risk management expectations for credits awaiting distribution, stress testing
expectations and portfolio management, and risk management expectations. This guidance
applies to all financial institutions substantively engaged in leveraged lending activities
supervised by the Board, the Federal Deposit Insurance Corporation (FDIC), and the Office of
the Comptroller of the Currency (OCC) (the agencies).
The agencies identified certain aspects of the proposed guidance that constitute a
collection of information. In particular, these aspects are the provisions that state a banking
organization should (1) have underwriting policies for leveraged lending, including stress testing
procedures for leveraged credits, (2) have risk management policies, including stress testing
procedures for pipeline exposures, and (3) have policies and procedures for incorporating the
results of leveraged credit and pipeline stress tests into the firm’s overall stress testing
framework.
Although the guidance is applicable to all institutions that originate or participate in
leverage lending, due to the large exposures created by these types of loans, these credits are
most likely originated primarily by larger institutions. Accordingly, the Board’s total annual
burden is estimated to be 29,422 hours for the 39 financial institutions that are likely to have
paperwork burden arising from the guidance. This estimate considered institutions engaged in
shared national credits, which are credit exposures of $20 million or more that, at inception, are
shared by two or more supervised institutions or are sold to one or more supervised institutions.
The shared national credit exposure for the 39 institutions does not include exposure to
commercial real estate, insurance, construction of individuals. There are no required reporting
forms associated with the guidance.

Background and Justification
In April 2001, the agencies (and Office of Thrift Supervision) issued guidance1 regarding
sound practices for leveraged finance2 activities (2001 Guidance). The 2001 Guidance addressed
expectations for the content of credit policies, the need for well-defined underwriting standards,
the importance of defining an institution’s risk appetite for leveraged transactions, and the
importance of stress testing exposures and portfolios.
In March 2013, the agencies issued revised guidance on leveraged lending
(2013 Guidance) to update and replace the 2001 Guidance in light of the developments and
experience gained since the 2001 Guidance was issued, including the experience of institutions
in the recent financial crisis.
The 2013 Guidance expands on the principles described in the 2001 Guidance. The
2013 Guidance includes expectations in regards to leveraged lending such that institutions
(1) identify and define their leveraged lending risk appetite taking into account the potential
effect on earnings, capital, liquidity, and other risks, (2) develop limit frameworks for leveraged
lending that include limits for single and aggregate exposures, as well as industry and geographic
concentrations, (3) institute procedures for ensuring the risks of leveraged lending activities are
appropriately reflected in an institution’s allowance for loan and lease losses (ALLL) and capital
adequacy analyses, (4) clarify credit and underwriting approval authorities and documentation
policies to amend approved transaction structures and terms, (5) implement guidelines for
appropriate oversight by senior management and the board of directors, (6) develop expected
risk-adjusted returns for leveraged transactions, and (7) institute minimum underwriting
standards and effective underwriting practices for loan origination and acquisition. The
2013 Guidance is intended to be consistent with industry practices while building upon
interagency guidance on Stress Testing.3
Description of Information Collection
As mentioned above, the 2013 Guidance replaced the 2001 Guidance and forms the basis
of the agencies’ supervisory focus and review of supervised financial institutions, including, as
applicable, subsidiaries and affiliates involved in leveraged lending. In implementing the
guidance, the agencies consider the size and risk profile of an institution’s leveraged portfolio
relative to its assets, earnings, liquidity, and capital. Although some sections of this proposal are
SR 01-9, “Interagency Guidance on Leveraged Financing,” April 17, 2001, OCC Bulletin 2001-8, FDIC Press
Release PR-28-2001.
2
For the purpose of this guidance, references to leveraged finance or leveraged transactions encompass the entire
debt structure of a leveraged obligor (including senior loans and letters of credit, mezzanine tranches, senior and
subordinated bonds). References to leveraged lending and leveraged loan transactions and credit agreements refer to
the senior loan and letter of credit tranches held by both bank and non-bank investors.
3
See interagency guidance “Supervisory Guidance on Stress Testing for Banking Organizations With More Than
$10 Billion in Total Consolidated Assets,” final supervisory guidance, 77 FR 29458 (May 17, 2012), at
https://federalregister.gov/a/2012-11989, and the joint “Statement to Clarify Supervisory Expectations for Stress
Testing by Community Banks,” May 14, 2012, by the OCC at www.occ.gov/news-issuances/news-releases/2012/nria-2012-76a.pdf; the Board at www.federalreserve.gov/newsevents/press/bcreg/bcreg20120514b1.pdf; and the FDIC
at www.fdic.gov/news/news/press/2012/pr12054a.pdf. See also FDIC Final Rule, Annual Stress Test, 77 FR 62417
(October 15, 2012) (to be codified at 12 C.F.R. part 325, subpart C).
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intended to apply to all leveraged lending transactions (e.g., underwriting), the vast majority of
community banks should not be affected by this guidance as they have no exposure to leveraged
credits. The limited number of community and smaller institutions that are involved in leveraged
lending activities may discuss with their primary regulator implementation of cost-effective
controls appropriate for the complexity of their exposures and activities.
Time Schedule for Information Collection
The documentation required by the 2013 Guidance is maintained by each institution;
therefore, are not collected or published by the Board. These recordkeeping requirements are
documented on occasion. Bank examiners would verify compliance with this recordkeeping
requirement during examinations.
Legal Status
The Board’s Legal Division has determined that all financial institutions supervised by
the Board and substantively engaged in leveraged lending activities are subject to the
FR 4203:
 Regarding state member banks, the information collection is authorized by section
11(a)(2) of the Federal Reserve Act (12 U.S.C. § 248(a)(2)), which authorizes the
Board to require any depository institution to make such reports of its assets and
liabilities as the Board may determine to be necessary or desirable to enable the Board
to discharge its responsibilities to monitor and control monetary and credit aggregates,
 With respect to bank holding companies, section 5(c) of the Bank Holding Company
Act (12 U.S.C. § 1844(c)), authorizes the Board to require a bank holding company and
any subsidiary “to keep the Board informed as to its financial condition, [and] systems
for monitoring and controlling financial and operating risks ...,”
 With respect to savings and loan holding companies (12 U.S.C. § 1467a(b)(3)),
authorizes the Board to “maintain such books and records as may be prescribed by the
Board,”
 Regarding branches and agencies of foreign banking organizations, section 7(c)(2) of
the International Banking Act of 1978 (12 U.S.C. § 3105(c)(2)), subjects such entities
to the requirements of section 11(a) of the Federal Reserve Act (12 U.S.C. § 248(a)) “to
the same extent and in the same manner as if the branch or agency were a state member
bank,” and
 Under section 25 of the Federal Reserve Act (12 U.S.C. § 602), member banks are
required to furnish to the Board “information concerning the condition of” Edge Act
and agreement c orporations in which they invest. More generally with respect to Edge
Act and agreement c orporations, under section 25A of the Federal Reserve Act (12
U.S.C. § 611a), the Board may “issue rules and regulations” governing such entities
“consistent with and in furtherance of the purposes” of that subchapter.
Because the information collection is called for in guidance and not in a statute or
regulation, it is considered voluntary. Because the information collected by the guidance is
maintained at the institutions, issues of confidentiality would not normally arise. Should the
information be obtained by the Board in the course of an examination, it would be exempt

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from disclosure under exemption 8 of Freedom of Information Act (FOIA) (5 U.S.C. §
552(b)(8)). In addition, some or all of the information may be confidential commercial or
financial information protected from disclosure under exemption 4 of FOIA, under the
standards set forth in National Parks and Conservation Association v. Morton, 498 F.2d 765
(D.C. Cir. 1974).
Consultation Outside of the Agency
On March 15, 2016, the Board published a notice in the Federal Register (81 FR 13791)
requesting public comment for 60 days on the extension, without revision, of the FR 4203. The
comment period for this notice expired on May 16, 2016. The Board did not receive any
comments. On May 27, 2016, the Board published a final notice in the Federal Register
(81 FR 33673).
Estimate of Respondent Burden
The total annual burden for the FR 4203 is estimated to be 29,422 hours, as shown in the
table below. The Board estimates that it would take the 39 Board-supervised institutions on
average 754.4 hours to maintain these provisions annually. These recordkeeping requirements
represent less than 1 percent of total Federal Reserve System paperwork burden.

FR 4203
Maintain guidance provisions

Number of
respondents4

Estimated
Annual
average hours
frequency
per response

39

1

754.4

Estimated
annual burden
hours
29,422

The total cost to the public is estimated to be $1,563,779.5
Sensitive Questions
This information collection contains no questions of a sensitive nature, as defined by
OMB guidelines.
Estimate of Cost to the Federal Reserve System
Since the FR 4203 does not require the Board to collect any information, the cost to the
Board is negligible.
4

Of these respondents, none are small entities as defined by the Small Business Administration (i.e., entities with
less than $550 million in total assets) www.sba.gov/contracting/getting-started-contractor/make-sure-you-meet-sbasize-standards/table-small-business-size-standards.
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Total cost to the public was estimated using the following formula: percent of staff time, multiplied by annual
burden hours, multiplied by hourly rates (30% Office & Administrative Support at $17, 45% Financial Managers at
$65, 15% Lawyers at $66, and 10% Chief Executives at $89). Hourly rates for each occupational group are the
(rounded) mean hourly wages from the Bureau of Labor and Statistics (BLS), Occupational Employment and Wages
May 2015, published March 30, 2016 www.bls.gov/news.release/ocwage.t01.htm. Occupations are defined using
the BLS Occupational Classification System, www.bls.gov/soc/.

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