OCC and FDIC Rescind Leveraged Lending Guidance for Banks

The Office of the Comptroller of the Currency ("OCC") and the Federal Deposit Insurance Corporation ("FDIC") rescinded prior instructions regarding leveraged lending and directed banks to apply general risk management principles.

The agencies withdrew previous guidance documents because they determined the instructions were overly restrictive and impeded banks from applying standard risk management principles to leveraged lending. The agencies asserted that this restrictiveness resulted in a significant decline in market share for regulated banks while nonbank market share grew. The agencies said the result of the prior guidance was to effectively push such activity outside the regulatory perimeter. They also stated that the prior guidance was overly broad, inadvertently capturing loans to investment-grade companies that were not intended to be covered. 

The agencies stated that their decision was based in part on a finding by the U.S. Government Accountability Office that the previous guidance constituted a rule under the Congressional Review Act. Because the guidance was never submitted to Congress for review as required by law, the agencies determined it was necessary to rescind the documents. 

In place of the rescinded documents, the agencies said they expect banks to manage leveraged lending exposures consistent with general principles for safe and sound lending. The agencies said that examiners will continue to review underwriting standards, risk ratings, and loan loss reserves, but they must do so based on these general principles tailored to the complexity and risk of the bank's specific activities. 

The relief provided by this rescission is effective immediately and is not subject to specific time limits. The agencies stated that they will consider issuing additional guidance in the future as appropriate, with a commitment that any such future guidance will be issued through the formal notice and comment process.