On December 5, the OCC and FDIC rescinded the Interagency Guidance on Leveraged Lending issued in 2013 and the related FAQs from 2014, citing concerns that these documents were “overly restrictive and impeded banks’ application to leveraged lending of the risk management principles that guide their other business decisions.” The regulators noted past guidance contributed to a decline in banks’ leveraged lending market share and an increase in participation by nonbank entities that are not subject to regulatory oversight.

In place of the rescinded guidance, the regulators outlined eight considerations that OCC supervised banks should follow to manage leveraged lending risks. For example, banks should define their own risk appetite, apply consistent underwriting criteria, and monitor leveraged loans throughout their life cycle, including independent evaluations for purchased participations, among other things. The statement noted that examiners will review banks’ underwriting practices, risk ratings, and loan loss reserves and tailor oversight to the size, complexity, and risk of each institution’s leveraged lending activities.