In a significant regulatory change, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) announced on December 5, 2025, the rescission of the 2013 Interagency Guidance on Leveraged Lending. Originally issued in the aftermath of the global financial crisis, the guidance established supervisory expectations for managing risks in leveraged transactions, including the widely cited benchmark of total debt-to-EBITDA ratios exceeding 6x as a heightened supervisory concern. While formally “guidance,” it functioned in practice as a de facto rule, reshaping underwriting standards, risk appetites, and supervisory outcomes across the banking sector. The rescission - effective immediately - replaces the prior framework with a principles-based approach centered on eight high-level risk management expectations.
This change responds to long-standing industry concerns that the guidance was overly prescriptive, contributed to risk migration away from regulated banks, and accelerated the growth of non-bank and private credit markets. Below are several key implications.
Implications for Banks
The withdrawal removes a structural constraint that had meaningfully reduced banks’ participation in leveraged lending, coinciding with a sharp rise in non-bank market share. Private credit now approaches approximately $1.3 trillion in outstanding direct lending - comparable in scale to the U.S. high-yield bond market ($1.4 trillion) and broadly syndicated leveraged loans ($1.5 trillion).
Under the revised principles, banks retain discretion to define leveraged lending exposures, align activity with board-approved risk appetites, and apply consistent underwriting and monitoring practices - including assessments of deleveraging capacity and cash-flow sustainability. This flexibility should allow leveraged lending to be more fully integrated into enterprise-wide risk frameworks.
However, competition is likely to intensify, particularly in middle-market segments where banks may again become viable alternatives to private credit providers. Importantly, institutions remain subject to safe-and-soundness standards, including independent credit analysis for participations and ongoing portfolio-level risk governance.
Implications for Clients
Borrowers - especially those with higher leverage profiles - may benefit from improved access to bank credit and more competitive pricing. The prior guidance’s broad application often swept in transactions involving otherwise strong or investment-grade borrowers, pushing financing toward non-banks and increasing cost of capital.
With the rescission, borrowers pursuing acquisitions, recapitalizations, or growth initiatives may encounter fewer structural barriers, particularly in smaller and middle-market transactions where public markets offer limited reach. Competitive dynamics could narrow spreads between broadly syndicated loans and direct lending, with some easing of covenant structures.
However, borrowers should expect continued focus on repayment sources, forward-looking performance assumptions, and stress resilience, as banks remain accountable for disciplined underwriting under the new principles.
Implications for the Broader Economy
At a macro level, the shift is favorable. Expanded bank participation in leveraged lending may support investment, hiring, and economic activity - particularly in middle-market and sponsor-backed segments that have relied heavily on private credit.
At the same time, the change places greater responsibility on banks’ internal risk management, governance, and supervisory dialogue. A sustained loosening of underwriting discipline would elevate systemic risk; conversely, well-executed principles-based oversight could foster a more competitive and resilient credit ecosystem.
Bottom line: The OCC and FDIC’s action represents a meaningful recalibration toward principles-based supervision - promoting competition while reinforcing the importance of strong internal risk governance. Banks and market participants should reassess underwriting frameworks, portfolio strategies, and supervisory engagement considering this shift.
