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GAO ruling threatens private credit boom

AP Photo/Khue Bui

The Government Accountability Office last Thursday ruled that the Federal Reserve and other regulators overreached in 2013 when they issued recommendations about bank underwriting of leveraged loans. The regulators had argued these were voluntary guidelines, but the GAO says that they constituted a formal rule that required Congressional notification (which didn't happen).

Why it matters: The guidelines have contributed to a boom in private credit funds, which were not under the same regulatory regime, according to BDO USA managing director Basil Karampelas. If Congress and President Trump were to overturn the guidance – which the GAO ruling makes possible – then a lot of these new funds will have competition from bank lenders that they had been formed to replace.

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