On December 5, 2025, the FDIC and Office of the Comptroller of the Currency (OCC) jointly announced the withdrawal of the Interagency Guidance on Leveraged Lending (2013 Guidance) and the Frequently Asked Questions for Implementing March 2013 Interagency Guidance on Leveraged Lending (2014 FAQs). This decision redefines regulatory expectations for banks engaged in leveraged lending.
Background
The 2013 Guidance was introduced in the aftermath of the 2008 financial crisis to address concerns about underwriting standards, risk concentrations, and systemic vulnerabilities in the leveraged loan market. It required banks to adopt detailed credit policies, define risk appetites, and conduct stress testing of leveraged exposures, among other items. The 2014 FAQs further clarified implementation issues of the 2013 Guidance, reinforcing supervisory expectations around repayment capacity, enterprise valuations, and debt structures, among other items, to ensure leveraged loans originated in a safe and sound manner.
What This Means for Banks
The withdrawal of the leveraged lending guidance provides banks with greater flexibility to manage this lending activity, provided they continue to adhere to the agencies’ broader safety and soundness expectations. This shift allows banks to balance opportunity and complexity, requiring institutions to offset definitional flexibility with disciplined credit risk management and oversight. Key implications include:
- Supervisory approach: Examiners will not apply the withdrawn leveraged lending guidance. Instead, examinations will focus on whether leveraged lending practices align with broad safety and soundness standards (e.g., 12 CFR Part 364 and 12 CFR Part 30).
- Policy autonomy: Banks will now have greater flexibility in designing internal risk management frameworks for leveraged lending activities.
- Heightened accountability: The absence of prescriptive guidance places greater responsibility on banks to demonstrate that their practices are prudent and consistent with safe and sound operations.
- Regulatory uncertainty: While the OCC and FDIC have withdrawn the guidance, the Federal Reserve has not yet acted.
Standards to Uphold
The FDIC and OCC reminded banks in their statement that in the absence of prescriptive leveraged lending guidance, banks must recognize that supervisory expectations have not disappeared. Rather, supervisory expectations have shifted toward broader principles of safety and soundness. This transition places greater emphasis on management, demonstrating that their lending practices are grounded in well-established credit fundamentals. Institutions are reminded of the following core lending principles for managing risks associated with leveraged lending:
- Managing core financial risks: A bank should manage all of the risks associated with its leveraged lending activities and tailor its risk management practices based on the quantity of the risk inherent in such activities.
- Risk appetite: A bank should 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. Further, the bank’s leveraged lending activities should clearly align with its risk appetite.
- Risk management and controls: Banks should have effective risk management and controls for transactions in their leveraged lending pipeline, including loans to be held as well as loans originated for distribution.
- Defining leveraged loan: Each bank should determine its own definition of a “leveraged loan.” A well-defined and articulated enterprise-wide definition supports the bank’s ability to identify, measure, monitor, and control its aggregate direct and indirect exposure to leveraged lending and determine adherence to its risk appetite and concentration limits.
- Underwriting criteria: A bank’s underwriting criteria should be consistently applied and consider a loan’s purpose and sources of repayment and the capacity to de-lever over a reasonable period.
- Performance analysis: A bank should conduct an analysis of a leveraged borrower’s past and current performance compared with projections, as well as the assumptions on which the projections are based, given the high level of debt relative to cash flow of these borrowers.
- Refinancing risk: Given these borrowers’ heightened dependence on access to the capital markets or banks for refinancing, a bank should monitor a leveraged loan throughout its lifecycle to assess the risk that refinancing is unavailable and to appropriately manage changes to the loan’s risk profile.
- Participations: A bank that purchases a participation in a leveraged loan should undertake a thorough independent evaluation of the transaction and the risk involved before committing funds. The evaluation should be substantially similar to the analyses that would be performed if the loan had been originated internally.
In this environment, institutions should view elevated core lending practices as the foundation of credibility with the regulators, customers, and other key stakeholders. The durability of a leveraged lending portfolio will hinge on how well banks embed credit fundamentals into their policies, governance structures, and daily decision making.
A Note on FDIC Assessments
The FDIC’s deposit insurance assessment regulations incorporate many elements of lending guidance – including quantitative criteria defining leverage as a ratio of the borrower’s total debt to EBITA – into the definition of a “Higher-Risk Asset” under Appendix C to Subpart A of 12 CFR part 327. Higher-Risk Assets are reported within the category of “Higher-risk commercial and industrial loans” on Schedule RC-O in the Call Report (FFIEC 031 and 041) for certain banks and become part of the deposit insurance assessment calculation. While it is possible that the FDIC could propose modifications to its deposit insurance regulations, banks required to report higher-risk commercial and industrial loans on Schedule RC-O are advised to maintain existing processes for regulatory reporting.
Next Steps
Beyond maintaining sound credit fundamentals, banks must anticipate market pressures, supervisory expectations, and regulatory divergence. Practical steps institutions can take to reinforce resilience, safeguard credibility, and position themselves competitively in this evolving environment include:
- Reassess policies and procedures: Management should review and update leveraged lending policies to ensure they remain viable under general safety and soundness principles.
- Enhance documentation: With less prescriptive guidance, thorough documentation of underwriting rationale and risk management practices becomes critical to withstand supervisory scrutiny.
- Monitor supervisory developments: Monitor future rulemakings to anticipate shifts in supervisory alignment.
- Engage proactively: Communicate with examiners regarding leveraged lending frameworks to demonstrate proactive risk management and transparency.
How Forvis Mazars Can Help
The withdrawal of the interagency leveraged lending guidance by the OCC and FDIC signals a decisive shift, giving institutions flexibility to refine their frameworks while demonstrating safe and sound practices. The removal of prescriptive guidelines heightens the need for a clearly articulated risk appetite, disciplined underwriting, lifecycle monitoring, and comprehensive documentation across leveraged lending portfolios.
Leaders face more challenges than ever, from striving to meet shareholder and regulatory expectations to advancing digital innovation. Forvis Mazars can help your financial institution tackle issues inherent to the industry, including market growth, governance and control effectiveness, portfolio analysis, and compliance. We have the skills and experience in financial services that you can trust, combining a focus on Unmatched Client Experience® with the resources of a global firm. Serving you is our passion and privilege.
If you have any questions or need assistance, please reach out to a professional at Forvis Mazars and let us be a resource for your institution.