WASHINGTON — The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) announced they are rescinding their 2013 “Interagency Guidance on Leveraged Lending” — along with the associated 2014 “Frequently Asked Questions” document — signaling a significant shift in regulatory posture toward bank-backed leveraged lending.
The joint release said the 2013 guidance and 2014 FAQs were “overly restrictive,” hindered banks’ ability to apply their usual risk-management practices to leveraged finance and pushed lending activity outside the regulated banking sector.
According to the FDIC and OCC, the guidance was originally issued in the wake of the financial crisis to curb high-risk loans to heavily indebted companies — including those financing leveraged buyouts, acquisitions, restructurings or other transactions — and typically limited loans where debt significantly exceeded earnings.
What’s Expected Now
Under the new rules, regulators said banks are expected to assess leveraged-loan risk using general principles of safe and sound lending rather than adhere to rigid leverage thresholds.
In rescinding the guidance, OCC and FDIC noted that the previous framework contributed to a sharp decline in bank-originated leveraged loans — while non-bank lenders captured growing market share. The agencies argued that eliminating the restrictive guidance may help restore bank participation in leveraged finance under prudent underwriting standards.
Examiner Focus
Examiners will continue to review underwriting quality, risk ratings and loan-loss reserves for leveraged loans under tailored supervisory standards, with requirements varying by the size, complexity and risk profile of each bank’s exposures, the two regulators said.
Still, the move marks a pivotal regulatory rollback and draws concern among some analysts who warn that loosened constraints could lead to increased risk-taking — particularly if economic conditions worsen and heavily leveraged borrowers struggle to repay.
