US regulators relax leveraged-lending guidance for banks

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Dec 5 (Reuters) – The U.S. Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation said on Friday they are withdrawing their guidance on leveraged lending issued more than a decade ago, a move that contributed to the rise of private credit.

The regulators said the framework had become “overly restrictive” and pushed lending activity into the non-bank sector.

This move is expected to intensify competition between banks and private lenders, and potentially bring more leveraged lending back inside the regulated banking system.

Leveraged lending, widely used to fund mergers and other corporate deals, remains a key source of capital for highly indebted borrowers.

The announcement marks another regulatory win for banks under the Trump administration, which has halted plans for tougher capital requirements and promoted a friendlier environment for banks.

Leveraged-lending guidance was introduced in 2013 by the OCC, the Federal Reserve and the FDIC to curb the riskiest loans made by banks.

Regulators said the 2013 rules made it harder for banks to use their normal risk-management practices.

As a result, banks lost market share while non-bank lenders gained ground, pushing more of this lending outside regulators’ oversight.

The guidelines broadly drew a line at 6 times for debt-to-EBITDA, with loans exceeding that standard requiring additional scrutiny from regulators.

Lending above that level was allowed if all of the company’s secured debt or half of the company’s debt could be paid down within five to seven years.

Banks will now be expected to apply broad credit-risk standards to leveraged lending.

(Reporting by Prakhar Srivastava in Bengaluru; Editing by Alan Barona)