The U.S. Federal Reserve has asked Credit Suisse to address problems relating to the bank's underwriting and sale of leveraged loans, the Wall Street Journal reported, citing a source familiar with the matter.
The use of these high-interest loans by private equity firms to finance deals has attracted the scrutiny of the Federal Reserve and the Office of the Comptroller of the Currency, with officials planning to take action firm by firm if banks do not rein in relaxed underwriting and debt-laden deals, the WSJ reported.
In a letter to Credit Suisse, known as a Matters Requiring Immediate Attention notification, the Federal Reserve said that it had found problems with the bank's adherence to guidance issued last year, in which banks were warned to avoid deals that included too much debt or too few protections for the lenders in case of a default, the report said, citing the person familiar with the matter.
A spokesman for Credit Suisse declined to comment and the Federal Reserve could not be reached for immediate comment outside business hours.
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Reuters reported in January that U.S. prosecutors had initiated an examination of Credit Suisse documents, including internal emails, to establish whether a bank committee charged with overseeing the quality of home loans ignored red flags to the detriment of mortgage investors.