Comptroller of the Currency and FDIC withdraw from Interagency Leveraged Lending Guidance

Agencies state that they expect banks to manage leveraged lending exposures consistently with general principles for safe and sound lending.

No action yet by Federal Reserve Board in rescinding the Leveraged Lending Guidance.

In an Interagency Statement issued on December 5, 2025 (Interagency Statement),¹ the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) announced that they were formally withdrawing from the “Interagency Guidance on Leveraged Lending” dated March 21, 2013 (Leveraged Lending Guidance) and the “Frequently Asked Questions for Implementing March 2013 Interagency Guidance on Leveraged Lending” dated November 7, 2014 (FAQs).² Although the third federal bank regulatory agency that had originally issued the Leveraged Lending Guidance and the FAQs—the Board of Governors of the Federal Reserve System (FRB)—has yet to announce any action with regard to the Leveraged Lending Guidance and the FAQs, it has been reported that that FRB, under the direction of Vice Chair for Supervision Michelle Bowman, is likely to follow the OCC and the FDIC in rescinding the Guidance and FAQs as part of the FRB’s current efforts to reduce regulatory burdens on banks.

The OCC and the FDIC stated in the Interagency Statement that the Leveraged Lending Guidance and the FAQs “were overly restrictive and impeded banks’ application to leveraged lending of the risk management principles that guide their other business decisions.” The OCC and the FDIC also observed that the overly restrictive approach taken in the Leveraged Lending Guidance and the FAQs had “resulted in a significant drop in leveraged lending market share by regulated banks and significant growth in leveraged lending market share by nonbanks, pushing this type of lending outside of the regulatory perimeter.” The agencies also noted that the Leveraged Lending Guidance and the FAQs had been “overly broad” and had “captured certain types of loans that were not intended to be covered, including loans to investment-grade companies.”

These developments mark the end of what had been one of the most controversial actions by the federal bank regulatory agencies in the post-financial crisis era in seeking to limit the impact on the US banking system and US financial stability of lending by banks to corporate borrowers with high levels of leverage. Those types of loans are typically provided for the financing of merger and acquisition transactions or other business expansions.  The actions by the OCC and the FDIC also indicate that, consistent with prior agency statements, the federal bank regulatory agencies no longer intend to subject bank lending to restrictive limits through the use of supervisory guidance rather than formally promulgated regulations.

Background on the Leveraged Lending Guidance

In their 2012 proposed rulemaking for the Leveraged Lending Guidance,³ the OCC, the FDIC and the FRB stated that since the issuance in 2001 of the interagency guidance on sound practices for leveraged finance activities (2001 Leveraged Finance Guidance),⁴ the agencies had “observed tremendous growth in the volume of leveraged credit.” Moreover, credit agreements had come to frequently include “features that provided relatively limited lender protection,” including “the absence of meaningful maintenance covenants” and “the inclusion of payment-in-kind toggle features in junior capital instruments” that lessened lenders’ recourse in the event that a borrower’s performance did not meet projections. The agencies also noted that the capital structures and repayment prospects for some highly leveraged transactions, whether originated by banks to hold or for distribution, had “at times been aggressive in light of the overall risk of the credit.”

For those reasons, the federal bank regulatory agencies determined to scrutinize bank leveraged lending practices more closely and to replace the 2001 Leveraged Finance Guidance with the Leveraged Lending Guidance. In response to the numerous questions that the federal bank regulatory agencies had received from the banking industry and other affected parties regarding the manner in which the Leveraged Lending Guidance was to be applied in practice, the agencies then followed up with their FAQs in 2014 to explain the manner in which the agencies were interpreting and implementing the Guidance for banks that were arranging, underwriting or distributing leveraged loans or purchasing participations in leveraged loans.

The Leveraged Lending Guidance and the FAQs were prescriptive in nature, containing some quite specific regulatory expectations for banks’ leveraged lending activities, which were sometimes regarded by the banking industry as “bright line” tests. That was in contrast to the more customary approach for supervisory guidance of identifying general and high-level principles that the regulatory agencies expect bank policies and practices to reflect.

Among other things, the Leveraged Lending Guidance and the FAQs cautioned banks that, with regard to the federal bank regulatory agencies’ risk rating system for bank credit exposures, the agencies would generally expect a borrower to demonstrate 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. A loan to a borrower that did not meet those de-levering guidelines, particularly where refinancing was “the only viable option,” would be at risk of being rated by the agencies as “non-pass” (i.e., special mention, substandard or doubtful) even if the loan had been recently underwritten, unless the borrower possessed other compensating means of financial support. Similarly, with regard to bank underwriting standards for leveraged loans, the Leveraged Lending Guidance stated that “a leverage level after planned asset sales (that is, the amount of debt that must be serviced from operating cash flow) in excess of 6X Total Debt/EBITDA raises concerns for most industries.”

A bank that originated a leveraged loan that was rated as non-pass at inception because the loan did not meet those standards or the other limitations and requirements in the Leveraged Lending Guidance and the FAQs was at risk of becoming subject to examiner criticism and potentially an examination ratings downgrade for engaging in unsafe and unsound lending practices, even where the loan was originated by the bank only for distribution rather than for the bank’s own loan portfolio.⁵ That was in keeping with the general approach of the federal bank regulatory agencies in regarding leveraged lending as a type of macroprudential risk for the US financial system as a whole, with the agencies stating in the Leveraged Lending Guidance that “a poorly underwritten leveraged loan that is pooled with other loans or is participated with other institutions may generate risks for the financial system.”

Recission of the Leveraged Lending Guidance by the OCC and the FDIC is the latest step in a series of actions that sidelined the Guidance

As noted by the OCC and the FDIC in the Interagency Statement, in 2017 the US Government Accountability Office (GAO), in response to a Congressional request, made a determination that the Leveraged Lending Guidance was a “rule” for the purposes of the Congressional Review Act⁶ and was therefore required to have been submitted to Congress for review.⁷ That statute establishes expedited procedures for Congress to overturn actions that have been taken by federal regulatory agencies, and it generally requires that a rule be submitted by the promulgating agency or agencies to Congress for review before the rule can take effect.

As explained in a White & Case client alert from October 2017 (“GAO Determines Leveraged Lending Guidance is a ‘Rule’ under Congressional Review Act”), this determination by the GAO cast considerable doubt on the status of the Leveraged Lending Guidance, which had not been submitted to Congress by the federal bank regulatory agencies when originally adopted. Moreover, the federal bank regulatory agencies never submitted the Leveraged Lending Guidance to Congress for review in the years following the GAO determination, nor did they take other actions to clarify the status of the Guidance such as by issuing new standards for leveraged lending in the form of a regulation that would be submitted to Congress for review or by abandoning the Leveraged Lending Guidance altogether in favor of an alternative approach. The OCC and the FDIC in the Interagency Statement cited this lack of response by the federal bank regulatory agencies to the GAO’s determination as an additional basis for rescinding the Guidance and the FAQs.

With the Leveraged Lending Guidance in a type of regulatory limbo in the period following the GAO’s determination, public remarks by the leadership of the FRB and the OCC indicated that the federal bank regulatory agencies were backing away from the Leveraged Lending Guidance and the FAQs. As noted in a White & Case client alert from March 2018 (“Banking Regulators Signal Movement Away from Leveraged Lending Guidance”), FRB Chair Jerome Powell emphasized in Congressional testimony the non-binding nature of the Leveraged Lending Guidance,⁸ and Joseph Otting (then serving as Comptroller of the Currency) noted in a speech to a finance industry group that banks had the right to engage in leveraged lending as long as they had the capital and management to manage those activities and the lending did not impact banks’ safety and soundness.⁹

Additionally, in September 2018 the FRB, the OCC and the FDIC, along with the Consumer Financial Protection Bureau and the National Credit Union Administration, issued an interagency statement clarifying the role of supervisory guidance and describing the agencies’ approach to supervisory guidance (Statement on Supervisory Guidance).¹⁰ Although the Statement on Supervisory Guidance was not issued specifically with regard to the Leveraged Lending Guidance, the approach taken by the federal bank regulatory agencies in the Statement on Supervisory Guidance clearly addressed the concerns that the Leveraged Lending Guidance had raised for the banking industry and among some members of Congress. The Statement on Supervisory Guidance explained that:

The Statement on Supervisory Guidance also announced some additional changes as to the manner in which supervisory guidance would be used by the federal bank regulatory agencies, which were directly responsive to several of the criticisms of the Leveraged Lending Guidance from the banking industry and some members of Congress. Those additional changes included that:

• The federal bank regulatory agencies intended to limit the use of numerical thresholds or other “bright-lines” in describing expectations in supervisory guidance, and that where numerical thresholds were used they would be “exemplary only and not suggestive of requirements;” and
• Bank examiners would not criticize a supervised financial institution for a “violation” of supervisory guidance, and any citations made by examiners would rather be for violations of law or regulation or non-compliance with enforcement orders or other enforceable conditions.

Moreover, in 2021, in response to a petition for rulemaking submitted under the Administrative Procedure Act by the Bank Policy Institute and the American Bankers Association, the federal bank regulatory agencies then issued formal rules in 2021 that codified the Statement on Supervisory Guidance with regard to the role of such guidance and the uses to which it may be put by the federal bank regulatory agencies. Those rules by the agencies, each of which was substantially identical,¹¹ confirmed that the principles set forth in the Statement on Supervisory Guidance were binding on each issuing agency.

Risk Management Principles to apply in place of Leveraged Lending Guidance

The recent Interagency Statement by the OCC and the FDIC, in addition to rescinding the Leveraged Lending Guidance and the FAQs for those agencies, also explained the manner in which those agencies expect banks to manage the risks associated with leveraged lending.

Specifically, the OCC and the FDIC advised banks to apply the federal bank regulatory agencies’ “general principles for prudent risk management” of commercial loans and other types of lending to their leveraged lending activities, rather than applying the Leveraged Lending Guidance and the FAQs. The OCC and the FDIC stated that banks “should consider” the following general principles for safe and sound lending when managing the risks associated with leveraged lending:

1. A bank should manage the credit and liquidity risks associated with leveraged lending, which may be more pronounced given the activity and profile of the borrowers involved, and tailor its risk management practices based on the quantity of the risk inherent in such activities;
2. A bank should have a “clearly defined risk appetite” that is reasonable and that reflects the aggregate level and types of risk the bank is willing and able to assume in order to achieve its strategic objectives. A bank’s leveraged lending activities should be clearly aligned with its risk appetite;
3. Each bank should have effective risk management and controls for transactions in its pipeline, including loans to be held, as well as those to be distributed;
4. Each bank should determine its own definition of a “leveraged loan” and apply that definition consistently on a bank-wide basis in order to support the bank’s ability to identify, measure, monitor and control its aggregate exposure to leveraged lending and to determine its adherence to the bank’s risk appetite and concentration limits (including for indirect exposures);
5. A bank’s underwriting criteria should consider a loan’s purpose and sources of repayment, as well as the capacity of the borrower to de-lever over a reasonable period, and underwriting criteria should be consistently applied to leveraged lending transactions;
6. In light of the fact that leveraged borrowers start with high levels of debt relative to cash flow, a bank should conduct an analysis of a leveraged borrower’s past and current performance compared with projections, as well as the assumptions on which the projections are based;
7. Because leveraged borrowers typically depend on access to the capital markets or banks for refinancing, a bank should monitor a leveraged loan throughout its life cycle to assess the risk that refinancing will be unavailable and to manage changes to the loan’s risk profile appropriately; and
8. A bank that purchases a participation in a leveraged loan should make a thorough, independent evaluation of the transaction and the risk involved before committing funds and should apply the same credit assessment and underwriting criteria as if the bank were originating the loan internally.

The OCC and the FDIC also noted that the examiners from those agencies “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 leveraged lending activities.”  

Additionally, the OCC and the FDIC stated that they “will consider issuing additional guidance related to leveraged lending as appropriate,” with any such further guidance to be issued by the agencies through the agencies’ notice and public comment process under the Administrative Procedure Act.

_{1 “Interagency Statement on OCC and FDIC Withdrawal from the Interagency Leveraged Lending Guidance Issuances” (Dec. 5, 2025), available at https://www.occ.gov/news-issuances/bulletins/2025/bulletin-2025-44a.pdf.
2 For the OCC, the Leveraged Lending Guidance and the FAQs were set forth in OCC Bulletin 2013-9, “Leveraged Lending: Guidance on Leveraged Lending” and OCC Bulletin 2014-55, “Leveraged Lending: Frequently Asked Questions for Implementing March 2013 Interagency Guidance on Leveraged Lending.” For the FDIC, the Leveraged Lending Guidance and the FAQs were set forth in FDIC FIL-53-2013, “Final Joint Guidance on Leveraged Lending” and FDIC FIL-54-2014, “Interagency Guidance on Leveraged Lending: Frequently Asked Questions (FAQS).”
3 OCC, FRB and FDIC, “Proposed Guidance on Leveraged Lending,” 77 Fed. Reg. 19417 (March 30, 2012).
4 “Interagency Guidance on Leveraged Financing” (April 17, 2001), FRB SR Letter 01–9, OCC Bulletin 2001-8, FDIC Press Release PR–28–2001.
5 Some reports indicated that banks had been told by their bank examiners to treat the Leveraged Lending Guidance and the FAQs as binding regulations, and also that failures by particular banks to comply with the specifics of the Guidance and FAQs had been the basis of examination criticisms and “matters requiring attention” warnings to bank management.  See “Monetary Policy and the State of the Economy,” hearing before the House Committee on Financial Services (Feb. 27, 2018) available at https://financialservices.house.gov/uploadedfiles/115-76.pdf (remarks of Rep. Luetkemeyer).
6 5 U.S.C. §§ 801 et seq.
7 GAO Letter to Sen. Pat Toomey, 163 Cong. Rec. S6636 (Oct. 19, 2017), available at https://www.congress.gov/crec/2017/10/19/CREC-2017-10-19-pt1-PgS6636-2.pdf.
8 “Monetary Policy and the State of the Economy,” hearing before the House Committee on Financial Services (Feb. 27, 2018), supra (remarks of FRB Chair Jerome H. Powell).
9 “OCC Head Says Banks Not Bound by Lending Guidelines, Expects Leverage to Increase,” originally published in Debtwire (Feb. 27, 2018).
10 “Interagency Statement on the Role of Supervisory Guidance” (Sept. 11, 2018), available at https://occ.gov/news-issuances/news-releases/2018/nr-ia-2018-97a.pdf.
11 See, e.g., FRB Rules of Procedure – Use of Supervisory Guidance, 12 C.F.R. § 262.7, and Appendix A to Part 262 (Statement Clarifying the Role of Supervisory Guidance).}

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