Executive Summary
On December 5, 2025, the FDIC and OCC withdrew the 2013 leveraged-lending guidance that limited bank exposure to loans where debt exceeded about six times earnings, particularly curbing lending by banks to private equity and loss-generating tech firms. This rollback aims to bring more leveraged loan activity under bank supervision and boost competitiveness against private credit, but raises concerns about renewed systemic risk in stressed environments. Concurrently, regulators finalized changes to the enhanced Supplementary Leverage Ratio (eSLR) for large banks, reducing capital burdens especially for their depository subsidiaries, and proposed easing leverage ratio rules for community banks.
Analysis
What Has Changed and Why
The OCC and FDIC officially rescinded the 2013 interagency guidance on leveraged lending, which had been interpreted by many banks to limit loans exceeding roughly six times a borrower’s earnings before interest, tax, depreciation, and amortization (EBITDA) unless certain payoff conditions were met [1][2]. Regulators judged the framework to be “overly restrictive” and driving leveraged loan issuance into the non-bank sector, thereby diluting oversight [1][3].
Simultaneously, U.S. banking regulators finalized alterations to the enhanced Supplementary Leverage Ratio (eSLR) that will replace its current fixed 2 percent requirement with a variable buffer tied to each bank’s GSIB (Global Systemically Important Bank) surcharge [4]. The change is expected to cut overall capital for large banks by about $13 billion (under 2 percent), with much larger relief—on the order of $200+ billion—for their insured depository subsidiaries [4][5].
Strategic Implications
For banks, this reduces the regulatory drag on certain high-risk / high-return lending, making it more feasible to reengage in leveraged buyouts, venture-stage financing, and expansion into tech or PE underwriting [2][3]. That may allow them to reclaim some of the private-credit market share lost under earlier rules [1][2].
For private lenders, intensified competition is likely. The non-bank private credit sector—estimated at more than US$700 billion as of 2024—had benefitted from regulatory arbitrage stemming from the 2013 guidance [2]. The rollback may channel more of such business back into banks, provided they have appetite and capacity.
Systemic risk concerns are resurfacing. Highly leveraged loans tend to suffer in downturns; coupled with rising junk bond defaults and economic uncertainty, critics warn that reduced guardrails may make banks vulnerable to credit losses [2][3]. Oversight will shift more toward generic principles rather than specific thresholds, placing emphasis on internal risk management, stress testing, and board governance.
Potential Risks and Open Questions
- How will banks calibrate risk pricing, underwriting, and internal controls absent explicit guidance? Overly aggressive lending could lead to losses should economic conditions deteriorate.
- What role will the Federal Reserve take? It has not yet joined in the withdrawal of the leveraged lending guidance, and its stance could influence consistency across regulatory oversight [1][2].
- Will this regulatory relaxation fuel a credit bubble? Recursive risk in sectors like private equity, leveraged corporates, or venture lending may amplify stress under adverse scenarios.
- How will market participants and investors reprice bank risk? Lower capital requirements may boost returns during benign times but may also increase volatility and cost of capital conditional on deteriorating credit quality.
- What’s the timeline for the community bank leverage ratio changes and how will those smaller banks adapt? The proposal to reduce it from 9 percent to 8 percent still requires public comment and implementation steps [4][5].
Supporting Evidence
- The 2013 leveraged-lending guidance placed a generally binding threshold of about six times debt-to-EBITDA for bank loans; loans above that required extra scrutiny or higher repayment expectations. [1][2]
- Regulators claim the guidance was “overly restrictive” and pushed high-risk lending into the non-bank/private credit sector, thereby reducing oversight. [1][3]
- The non-bank private credit market has exceeded US$700 billion by 2024, surpassing banks in this segment. [2]
- The eSLR capital relief will cut overall capital demands by about $13 billion for large global banks (<2 percent reduction), while their depository units may see relief of $200+ billion (27 percent) under the revised rules. [4][5]
- The OCC also rescinded its 2023 guidance on venture loans and issued updated guidance for early, expansion-, and later-stage company loans. [5]
- The community bank leverage ratio proposal seeks to lower the minimum from 9 percent to 8 percent for eligible institutions, with delayed compliance timelines for out-of-compliance banks. [4][5]
Sources
- [1] www.reuters.com (Reuters) — 2025-12-05
- [2] www.wsj.com (The Wall Street Journal) — 2025-12-05
- [3] www.ft.com (Financial Times) — 2025-12-05
- [4] www.pwc.com (PwC US) — 2025-12-05
- [5] beinsure.com (BeInsured/Bloomberg) — 2025-11-25