US regulators have demanded Swiss banking major Credit Suisse to immediately address problems with its underwriting and sale of leveraged loans used to fund buyouts, which have high interest rates and are deemed to be too risky.
The Wall Street Journal citing a person familiar with the matter reported that the bank recently received a letter from the Federal Reserve, under the heading of "Matters Requiring Immediate Attention", relating to highly leaveraged loans made to private equity firms.
The letter accuses the bank of not adhering to the Fed's guidance issued in 2013, asking it to avoid deals that included too much debt or too few protections for the lenders in case of default.
Credit Suisse has underwritten or sold close to $9bn (£5.5bn, €7bn) of loans marketed to US investors for the purpose of leveraged buyouts in the year to date, giving it a market-dominating 13.4% share, according to data provider Dealogic.
The regulators are preparing to take tougher actions against those companies, which don't follow their orders, WSJ added. They plan to take action on a firm-by-firm basis.
Officials at the Fed and the Office of the Comptroller of the Currency are using private communications with banks to rein in relaxed underwriting and debt-laden deals, people familiar with the matter told the newspaper.
They may also lower a bank's supervisory rating and issue cease-and-desist orders that carry the risk of fines of up to a maximum of $1m a day in corrective measures.
Reuters earlier reported that US prosecutors had probed the bank to find out if a bank committee charged with overseeing the quality of home loans ignored red flags to the detriment of mortgage investors.