Regulators Rescind Guidance Banks Reenter Leveraged Lending
The OCC and FDIC last week withdrew 2013 leveraged-lending guidance and related 2014 FAQs, saying the rules were overly broad and restrictive. The move comes after a decade in which nonbanks expanded corporate credit to over $1 trillion by 2018 while borrower leverage rose, and it allows banks to reenter leveraged lending with internally defined standards. The shift may heighten competition and systemic risk, requiring stronger underwriting and monitoring.
Key Points
- 1Rescinds 2013 leveraged-lending guidance, allowing banks to internally define leveraged loans and adjust underwriting.
- 2Nonbanks expanded to more than $1 trillion by 2018, coinciding with higher borrower leverage and fewer covenants.
- 3Raises potential systemic risk if banks ease underwriting to match nonbanks, necessitating enhanced monitoring and risk analytics.
Scoring Rationale
Major regulatory reversal increases banking competition and systemic exposure; impact limited by sector-specific scope and uncertain bank responses.
Sources
Public references used for this report.
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