OCC and FDIC Rescind Interagency Leveraged Lending Guidance

On December 5, 2025, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation issued a joint statement (the “Statement”)[1] announcing their withdrawal from the 2013 “Interagency Guidance on Leveraged Lending” (the “2013 Guidance”)[2] and the 2014 “Frequently Asked Questions for Implementing March 2013 Interagency Guidance on Leveraged Lending” (the “2014 FAQs”).[3] The OCC and FDIC, in explaining their rationale, stated that the 2013 Guidance: (1) was overly restrictive, (2) impeded banks’ application of existing risk management principles to their leveraged lending practices, (3) was overly broad, capturing loan types that were not intended to be covered (e.g., loans to investment-grade companies), and (4) was never properly submitted to Congress for review.

In place of the rescinded guidance, the Statement sets forth eight “general principles” for prudent risk management of commercial loans and other types of lending. These principles cover risk appetite, underwriting standards, portfolio monitoring, the bank’s internal definition of “leveraged loan” and ongoing lifecycle risk management. The Board of Governors of the Federal Reserve System (the “FRB”) did not join[4] the OCC and FDIC, leaving open the question of whether the FRB’s supervisory expectations will align with the Statement.[5]

Background

In 2001, the FRB, OCC, FDIC, and Office of Thrift Supervision issued guidance on sound risk management practices for leveraged financing.[6] Following the issuance of that guidance, the banking agencies observed periods of “tremendous growth”[7] in the volume of leveraged credit. This rapid increase in levered credit and more highly levered capital structures was driven by many factors, but a principal driver was the growth of assets under management by private equity funds, the rapid expansion of the CLO market, and the emergence of mega-buyouts.[8] As the market evolved and, in the bank regulators’ view, became more risky,[9] the FRB, OCC, and FDIC responded by jointly issuing the 2013 Guidance. That guidance prescribed a set of minimum expectations on a wide range of leveraged lending issues, including underwriting and valuation standards, pipeline management, risk rating of leveraged loans, credit analytics, problem credit management, credit review and stress testing.

In response to industry concern about the limitations imposed by the 2013 Guidance, the FRB, OCC, and FDIC issued the 2014 FAQs. The 2013 Guidance and 2014 FAQs, in addition to establishing high-level supervisory expectations for leveraged lending, included references to quantitative metrics (notably, drawing a line at loans with 6x debt-to-EBITDA, and subjecting loans exceeding that metric to additional scrutiny), as well as specific credit agreement covenant protections and collateral requirements that regulators would expect to see (e.g., the 2013 Guidance states that when reviewing loans and credit agreements, “supervisors commonly assume that the ability to fully amortize senior secured debt or the ability to repay at least 50 percent of total debt over a five-to-seven year period provides evidence of adequate repayment capacity. If the projected capacity to pay down debt from cash flow is nominal with refinancing the only viable option, the credit will usually be adversely rated even if it has been recently underwritten.”).[10] Together, these supervisory expectations, metrics, and covenant requirements materially constrained the ability of banks to participate or provide competitive terms in higher-leverage transactions. As banks pulled back from portions of the market that were most likely to attract supervisory criticism, private credit expanded to fill the gap, shifting a significant volume of leveraged credit origination outside the prudentially regulated banking sector.

Banks have argued since the 2013 Guidance and 2014 FAQs were issued that the guidance was unduly restrictive and not well-correlated with actual credit risk. Banks reported that the framework captured an overly broad range of transactions (including loans to borrowers with investment-grade ratings and other lower-risk profiles) and required the maintenance of a parallel risk-management infrastructure solely to respond to examiner expectations. In addition, banks argued that examiners and supervisors were treating the 2013 Guidance and 2014 FAQs as legally binding requirements, rather than high-level expectations.

Regulatory and Congressional Scrutiny of Supervisory Guidance

In 2017, at the request of Senator Pat Toomey,[11] the U.S. Government Accountability Office (“GAO”) reviewed the 2013 Guidance and concluded that it constituted a “rule” for purposes of the Congressional Review Act (“CRA”) and therefore should have been submitted to Congress for review, which had not occurred in this case.[12] This determination prompted broader scrutiny of the legal status of supervisory guidance, including leveraged-lending guidance, and raised the possibility that Congress could seek to disapprove the guidance under the CRA framework.

In 2018, the FRB, OCC, FDIC, and the National Credit Union Administration issued an interagency statement[13] clarifying that supervisory guidance does not have the force and effect of law and should not serve as the basis for enforcement actions, highlighting what was widely perceived as the tension between the limited formal legal effect of the 2013 Guidance and 2014 FAQs and their de facto significance in terms of supervisory implementation.

More recently, Congressional Republicans have raised concerns regarding guidance issued by the banking agencies across a range of supervisory topics. In November 2025, the Republican members of the House Financial Services Committee sent a letter[14] urging the banking agencies to rescind several legacy guidance documents, including the 2013 Guidance, arguing that the documents were improperly issued outside the CRA process and have operated in practice as binding rules.

Recission of Guidance and New General Principles

Last week’s actions represent further evidence of the approach of the new leadership at the OCC and FDIC to take a fresh look at the overall regulatory and supervisory framework.[15] In the Statement, the OCC and FDIC make clear that they view the 2013 Guidance and 2014 FAQs as being “overly restrictive,” “overly broad,” and impeding banks’ ability to apply general risk-management principles to leveraged lending, contributing to a material decline in banks’ share of the leveraged-loan market.

In place of the rescinded leveraged-lending framework, the OCC and FDIC instruct banks to manage leveraged-lending exposures under eight “general principles for prudent risk management of commercial loans and other types of lending.”

1. Core financial risks and proportional risk management. Leveraged-loan activities expose banks primarily to credit and liquidity risks, which may be more pronounced than in ordinary commercial lending because of borrowers’ higher leverage and dependence on market access. Banks are expected to manage those risks effectively and to tailor their risk-management practices to the nature and scale of their leveraged-lending activities.
2. Clearly defined risk appetite. Banks should maintain a clearly defined and reasonable risk appetite that reflects the aggregate level and types of risk the bank is willing and able to assume to meet its strategic objectives.
3. Risk management for pipeline and hold positions. Banks should maintain effective risk-management and control frameworks for leveraged-loan transactions in the origination pipeline, whether the loans are intended to be held or distributed.
4. Bank-specific definition of “leveraged loan.” Banks are expected to develop and apply their own internal definition of a “leveraged loan” on a consistent, bank-wide basis so that they can identify, measure, monitor and control aggregate leveraged-lending exposure, including indirect exposures such as loans to funds and investments in securitizations that reference leveraged loans.
5. Underwriting standards and de-leveraging capacity. Underwriting criteria for leveraged loans should consider the loan’s purpose, sources of repayment and the borrower’s ability to de-lever to a sustainable capital structure over a reasonable time horizon. The agencies emphasize that, given the risk profile of leveraged transactions, underwriting standards should be applied consistently across the portfolio.
6. Assessment of borrower performance and projections. Because leveraged borrowers typically begin with high debt-cash-flow ratios, banks should conduct an assessment of a borrower’s historical and current performance relative to projections, as well as the reasonableness of the assumptions underlying forward-looking financial projections.
7. Life-cycle monitoring and refinancing risk. Because leveraged borrowers typically depend on access to capital markets or banks for refinancing, banks should monitor leveraged loans throughout the life cycle to assess the risk that refinancing is unavailable and to appropriately manage changes to the loan’s risk profile.
8. Independent assessment of participations. Banks that purchase participations or assignments in leveraged-loan transactions are expected to conduct their own independent credit assessments and apply the same underwriting standards and risk-management criteria that would apply if the bank were the originating lender.

The OCC and FDIC also stated that examiners will examine banks’ underwriting, review risk ratings, and monitor the adequacy of loan loss reserves in accordance with general principles of safe and sound lending in a manner tailored to the size, complexity, and risk of the bank’s leveraged lending activities.

Implications

By rescinding the 2013 Guidance and 2014 FAQs and emphasizing general risk-management principles rather than prescriptive leveraged-lending requirements, the OCC and FDIC have removed a significant supervisory constraint that, in practice, had limited many banks’ willingness or ability to originate or hold certain leveraged loans.

The shift away from the bright-line approach of the 2013 Guidance and 2014 FAQs highlights the increased importance of documentation and governance. Under the new principles-based guidance, banking organizations would be well advised to document their leveraged-lending strategies, risk appetites, and portfolio-management practices.

The OCC and FDIC stated that they will consider issuing additional leveraged lending guidance and committed to issuing any further guidance through the public notice and comment process.

The rescission also reflects a broader policy objective of the current administration, articulated by Treasury Secretary Bessent, to revise the prudential framework to reduce certain regulatory and supervisory constraints that have had the effect of shifting significant portions of leveraged-lending activity outside the bank regulatory perimeter.[16] The current changes are consistent with the broader recalibration of supervisory policy by the federal banking agencies,[17] and banks are likely to interpret this shift as providing additional flexibility to underwrite a wider range of loans, subject to their own risk appetites and capital and liquidity constraints. As a result of these changes, banks should be better able to compete with private-credit providers.