Back in 2013, when memories of the financial crisis were still fresh(ish), US banking watchdogs made a joint, solemn pact. If any American bank lent money to companies with high leverage — defined as six times more debt than earnings before interest, tax, depreciation and amortisation — then regulators at the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Federal Reserve would crack down.
So, too, if banks funded companies that might struggle to pay back all their senior creditors within the next five to seven years, based on expected cash flows.
How times change. A couple of years ago, Obama-appointed regulators warned that some banks were finding ways to skirt that “six times” rule. Now some Trump-era regulators seem ready to abandon it.