Executive Summary
Regulators have rescinded longstanding limits on “leveraged lending”—bank loans made to highly indebted companies—by withdrawing the interagency guidance from 2013 on such transactions. Additionally, bank capital rules are being loosened: the enhanced supplementary leverage ratio (eSLR) will be relaxed for large banks and their depository subsidiaries beginning April 1, 2026, and the community bank leverage ratio (CBLR) may be eased under a proposed framework. These changes could boost credit availability and bank competitiveness but raise concerns about elevated risk, greater exposure to default during downturns, and reduced oversight.
Analysis
In early December 2025, U.S. banking regulators—specifically the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC)—formally withdrew their 2013 Guidance on Leveraged Lending, along with associated FAQs, deeming the framework “overly restrictive” because it had pushed lending into the unregulated non-bank private credit sector [1][2]. Under the rescinded guidance, loans with debt-to-EBITDA ratios above six times required special scrutiny; now banks may rely on more holistic credit-risk management standards rather than fixed leverage thresholds [1].
At the same time, the enhanced Supplementary Leverage Ratio (eSLR), which applies to large systemically important banks and their insured depository institution (IDI) subsidiaries, has been recalibrated: the current fixed requirement of 2% of total leverage exposure will be replaced with a variable standard tied to each bank’s GSIB surcharge, effectively lowering minimum leverage ratios from the current 5% to between approximately 3.5% and 4.25% [3][4]. The final rule goes into effect on April 1, 2026, with voluntary compliance from January 1, 2026 [3][5].
For community banks, regulators have proposed lowering the CBLR—which many smaller banks can opt into—from 9% to 8%, and lengthening the grace period for falling below the requirement, provided the bank has not used extensions repeatedly [6][7]. These shifts are intended to ease capital burdens, especially where leverage ratios have become binding constraints.
Strategic implications are multifold. Banks at the high end will likely seize opportunities in leveraged and venture lending, competing more directly with private equity and private credit firms, potentially increasing market share. Lower capital requirements free up capital for debt issuance, shareholder returns, or higher risk assets. However, loosening fixed rules replaces clarity with discretion: this could lead to inconsistencies in underwriting and power asymmetry in supervisory judgments. Critics warn these moves increase the risk of asset-price bubbles, defaults, and systemic exposures, especially if underwriting standards slip during times of stress. Open questions remain regarding how credit risk will be measured going forward, what pressure supervisors will bring to bear, and how these changes interact with related global capital standards (e.g., Basel III implementation).
Supporting Evidence
• The OCC and FDIC withdrew the 2013 “Interagency Guidance on Leveraged Lending,” citing its overly restrictive effect and its facilitation of lending migration into the unregulated non-bank sector [1][2].
• Under the old guidance, leveraged loans were discouraged above a debt-to-EBITDA ratio of 6x unless certain repayment schedules were met; that threshold has now been eliminated in favor of broader credit-risk principles [1][2].
• Regulators finalized changes to the eSLR so that minimum effective leverage requirements drop from a fixed 5% to a variable range between 3.5% and 4.25%, tied to each institution’s GSIB (Global Systemically Important Bank) surcharge, effective April 1, 2026 [3][5].
• Depository subsidiaries under large holding companies will see capital requirement reductions averaging 27%, equivalent to about $213 billion in aggregate [3][5].
• The CBLR proposal, applicable to qualifying community banks, would reduce the leverage requirement from 9% to 8% and extend the period for returning to compliance to one year with certain conditions [6][7].
• Industry groups have lauded these changes for reducing burdens and boosting competitiveness; critics warn of elevated credit risk, potential losses, and systemic vulnerabilities, especially if economic conditions worsen [1][2][3].
Sources
- [1] www.reuters.com (Reuters) — 2025-12-05
- [2] www.ft.com (Financial Times) — 2025-12-05
- [3] www.investing.com (Investing.com) — 2025-11-25
- [4] www.pwc.com (PwC) — 2025-12-05
- [5] www.forbes.com (Forbes) — 2025-11-26
- [6] www.americanbanker.com (American Banker) — 2025-11-?', "source_type":"primary" } ] }
- [7] finance.yahoo.com (Yahoo Finance) — 2025-11-12