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Bank Lending to LBOs: Risks and Supervisory Response

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Leveraged buyouts (LBOs), a popular method of corporate restructuring in the past decade, have attracted significant attention among the news media, Congress, and bank regulators. The huge size of recent takeover deals and the dramatic increase in LBO credits on bank portfolios have raised concerns about the risks of LBO financing. This article examines these risks and discusses the current response of bank supervisory authorities to the increased use of funding by leveraged buyouts.

Leveraged buyouts (LBOs), a popular method of corporate restructuring in the past decade, have attracted significant attention among the news media, Congress, and bank regulators. The huge size of recent takeover deals and the dramatic increase in LBO credits on bank portfolios have raised concerns about the risks of LBO financing. This article examines these risks and discusses the current response of bank supervisory authorities to the increased use of funding by leveraged buyouts.


Suggested citation: Hoskins, W. Lee, 1989. "Bank Lending to LBOs: Risks and Supervisory Response," Federal Reserve Bank of Cleveland, Economic Commentary, 02.15.1989.

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