Are banks once again taking a much too cavalier attitude toward leveraged loans? The Office of the Comptroller of the Currency (OCC) thinks so.

This is somewhat surprising coming from the OCC, which, under the direction of previous head John Dugan, was often seen as a defender of the industry. His successor, John Walsh, has also drawn ire, especially for his position that capital ratio requirements might be going overboard, which will constrain lending and undercut the recovery. So if the OCC thinks that banks are lowering the leveraged loan standards too much, perhaps the world ought to take note. Or not.

The OCC issued its 17th annual Survey of Credit Underwriting Practices this week, which showed that after 3 years of broad tightening of underwriting standards, there were signs of easing--especially in commercial products. It was the first time in two years that the industry relaxed its leveraged loan standards. A year earlier, 75 percent of banks said they tightened their rules. Some of this may reflect improved lending conditions and deal conditions.

Dave Wilson, the newly appointed Senior Deputy Comptroller for Bank Supervision Policy and Chief National Bank Examiner, however, warned, "We need to remember that overly liberal underwriting standards contributed to extremely high credit losses. The pace of easing standards in products like leveraged lending is disconcerting and warrants close attention."

This easing may be lost on dealmakers right now, who are actually sensing the opposite. As the Greek debt drama unfolds, lots of rethinking is going on by banks and most would agree that liquidity has been curtailed. High-yield activity, bridge loan and other financing activity has stalled a bit. We'll see if this proves temporary or not.

For more:
- here's a New York Times article
- here's the OCC statement

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