Executive Summary
US financial regulators have rescinded the 2013 leveraged-lending guidance, which limited loans with debt-to-EBITDA ratios above six unless certain repayment criteria were met, calling it “overly restrictive” and driving activity into lightly regulated private credit funds [2][5]. Concurrently, a final rule easing enhanced supplementary leverage ratio (eSLR) requirements will reduce capital held by large global banks by ~$13 billion (≈2%), and by ~$213 billion (≈27%) for their depository subsidiaries; these changes take effect April 1, 2026 with optional early adoption [4][1]. The community bank leverage ratio (CBLR) minimum is lowered from 9% to 8%, and extended non-compliance grace periods are being considered [4][3].
Analysis
The rollback of the 2013 interagency leveraged-lending guidance represents a major shift in how banks can engage with high-risk credits such as leveraged buyouts. Under the old framework, loans exceeding a debt/EBITDA ratio of six times required stricter underwriting, repayment sources, or amortization schedules. Its removal signals regulators believe banks’ own risk management tools can now substitute for across-the-board caps [5][2].
The easing of the eSLR—lowering capital held against total leverage exposures—directly benefits large financial institutions, especially banking subsidiaries that had previously been constrained. Even though holding companies are still subject to other capital requirements, the shift significantly frees up capital at banking ops, potentially encouraging reinvestment or lending activities [1][4].
For community banks, reducing the CBLR threshold from 9% to 8% gives breathing room for balance sheet growth and helps absorb deposit or interest rate volatility without triggering regulatory stress. Extended grace periods for falling out of compliance reduce procyclical pressure especially during economic downturns [3][4].
Strategic implications include increased competitive pressure on non-bank lenders, faster growth in leveraged deal flow, and potential loosening of underwriting discipline. In economic downturns, risks are heightened: banks may face worsening credit defaults, systemic stress could rise, and market participants may call for renewed regulatory tightening. Key open questions include how well risk governance will scale, whether pricing models reflect higher default probabilities, where non-bank competition challenges emerge, and how transparent and quantitative supervisory oversight will be.”
Supporting Evidence
- The OCC and FDIC withdrew the 2013 leverage-lending guidance (and its 2014 FAQs) on December 5, 2025, labeling it overly restrictive and saying it pushed leveraged lending into non-bank sectors [2][5][7].
- Under the old guidance, banks were discouraged from issuing loans with debt/EBITDA above 6× unless certain criteria (repayment sources, amortization) were met [2].
- The FDIC’s final rule easing the enhanced supplementary leverage ratio will reduce capital requirements by roughly $13 billion (≈2%) for large global banks’ holding companies, and about $213 billion (≈27%) for their depository subsidiaries. Compliance begins April 1, 2026 [1].
- The CBLR minimum is proposed to drop from 9% to 8% for community banks that opt into it [3][4].
- Regulators also plan extending grace period for non-compliance from two quarters to four (a full year), for banks with stable compliance history under the CBLR [4].
- Critics argue easing these rules could lead to greater credit losses and increase systemic risk, particularly given elevated junk bond default rates and concentration of risk in private credit sectors [2][5].
Sources
- [1] www.reuters.com (Reuters) — 2025-11-25
- [2] www.reuters.com (Reuters) — 2025-12-05
- [3] www.forbes.com (Forbes) — 2025-11-26
- [4] www.americanbanker.com (American Banker) — 2025-06-27
- [5] www.bankingdive.com (Banking Dive) — 2025-12-08
- [7] www.pwc.com (PwC) — 2025-12-05