OCC and FDIC Withdraw ‘Overly Restrictive’ Leveraged Lending Guidance

The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) withdrew two interagency leveraged lending guidance issuances, saying the guidance was “overly restrictive.”

The regulators rescinded the “Interagency Guidance on Leveraged Lending,” dated March 21, 2013, and the “Frequently Asked Questions (FAQ) for Implementing March 2013 Interagency Guidance on Leveraged Lending,” dated Nov. 7, 2014, according to their Friday (Dec. 5) joint release.

“The agencies expect banks to manage leveraged lending exposures consistent with general principles for safe and sound lending,” they said in the release.

The regulators said in the release that the rescinded guidance issuances were overly restrictive, prevented banks from applying to leveraged lending the risk management principles they apply to other business decisions, and were overly broad.

In addition, they said, the 2013 guidance was never submitted to Congress for the review required by the Congressional Review Act.

“For these reasons, the agencies are rescinding the 2013 Guidance and the 2014 FAQs,” they said in the release. “In place of these issuances, banks should apply the agencies’ general principles for prudent risk management of commercial loans and other types of lending to their leveraged lending activities.”

It was reported in October that the relaxation of financial regulations could enable banks to unleash $2.6 trillion in lending capacity.

The report cited consultancy Alvarez & Marsal and noted that the U.S. government has taken a much more bank-friendly stance on regulations since President Donald Trump returned to office.

“We think the Trump administration is kicking off a major wave of deregulation, unlocking a huge amount of capacity, which will give a massive economic boost and an earnings uplift,” Fernando de la Mora, co-head of financial services at Alvarez & Marsal, told the Financial Times in October.

In October, the OCC and the FDIC said in a joint notice of proposed rulemaking that they were overhauling how they determine when a bank crosses the line from prudent to “unsafe.” Their proposal would, for the first time, codify what qualifies as an “unsafe or unsound practice” under Section 8 of the Federal Deposit Insurance Act.