The FDIC and the Office of the Comptroller of the Currency today rescinded guidance on leveraged lending issued more than a decade ago, saying it was too restrictive.
The agencies rescinded the 2013 guidance and a 2014 FAQ on the guidance that was issued jointly with the Federal Reserve. The guidance outlined “high-level principles” related to safe-and-sound leveraged lending activities. However, in a statement today, the FDIC and OCC said the documents impeded banks’ application of risk management principles to leveraged lending.
“This 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,” they said.
The agencies are replacing the guidance with eight “general principles” for risk management of commercial loans and other types of lending. They include the recommendation that banks have “a clearly defined risk appetite that is reasonable and reflects the aggregate level and types of risk it is willing and able to assume to achieve its strategic objectives.”
In related news, the OCC today updated guidance concerning venture loans. The updates reflect “the OCC’s policy of not discouraging banks from engaging in prudent venture lending activities.”
