More than five months ago, the Federal Reserve and Office of theComptroller of the Currency (OCC) told some of the biggest banks toimprove underwriting standards for non-investment-grade loans. Themarket is showing few signs of tightening as lenders chaselucrative fees.

Banks are arranging junk-rated deals that leave companies withdebt levels exceeding guidelines set by regulators. Among them: the$1.7 billion of loans led by UBS AG and Deutsche Bank AG last monthto finance KKR & Co.'s purchase of a majority stake in SedgwickClaims Management Services Inc., and the $700 million loan CreditSuisse Group AG arranged in January for Applied Systems Inc., amaker of software for insurance companies.

Bank supervisors are insisting on minimum standards as they seekto avoid a repeat of the losses that occurred during the creditcrisis, which sent the global speculative-grade default rate tomore than 13 percent in 2009, the highest since the GreatDepression. The persistence of deals with questionable terms showsthat, so far, regulators are having trouble deterring excessiverisk-taking simply by asking.

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