Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation rescind interagency leveraged lending guidance and related FAQs

The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) have rescinded the 2013 Interagency Guidance on Leveraged Lending and the 2014 Frequently Asked Questions for implementing that guidance. In place of those issuances, banks are expected to manage leveraged lending exposures under general safe and sound lending principles. The agencies said the 2013 guidance and 2014 FAQs were overly restrictive, impeded application of risk management principles used in other lending, and contributed to a shift in leveraged lending market share from regulated banks to nonbanks. They also said the guidance was overly broad and captured loans not intended to be covered, including loans to investment-grade companies, and noted the U.S. Government Accountability Office’s finding that the 2013 guidance was a rule under the Congressional Review Act that should have been submitted to Congress but was not. The statement sets out supervisory expectations framed as general risk management principles, including aligning leveraged lending with a clearly defined risk appetite, maintaining controls over pipeline exposures, applying consistent underwriting and credit assessment practices including for loan participations, defining “leveraged loan” consistently at the bank-wide level, monitoring borrowers and refinancing risk over the life of the loan, and examiner review of underwriting, risk ratings, and loan loss reserves tailored to the bank’s leveraged lending profile. The OCC and FDIC said they may issue additional leveraged lending guidance as appropriate and that any further guidance will be issued through a notice-and-comment process.