U.S. Banks Step-Up, Regulators Step Back as Leveraged Lending Guidance is Relaxed

The OCC & FDIC rolled back their 2013 Guidance that limited banks from extending 6x leverage on corporate loans, which has restricted their ability to provide financing for many of the LBOs as well as growth capital for tech and software companies that were scaling. Given last week’s guidance, banks are essentially granted permission to step back in and compete. Noticeably absent is the Federal Reserve, while they opined in 2013 with respect to this regulatory roll-back, they did not provide guidance. With a new Fed Chair appointed in May '26 (Kevin Hassett), deregulation and lower rates will be his priority, so the Fed will likely join the OCC and FDIC, providing a green light for banks. In the interim, I interpret this decision by the OCC and FDIC as a signal that banks can proceed with caution. 

Since the GFC, banks have yielded market share to nonbank lenders (Private Credit: DL Funds, BDCs), which helped fuel the growth of private credit. This development was critical for private equity and markets in general as private credit provided essential capital that enabled thousands of privately-owned companies to thrive. Private credit fueled M&A and LBOs as well as CapEx needs. Banks providing capital for a growing economy is critical; we welcome this development as bank will compete with Private credit lenders, providing an alternative source of capital for companies. In addition, bank regulators have eased the supplementary leverage ratio that dictates how much capital big banks must hold against their total assets freeing up capital to lend, driving ROE and bank asset growth.

Across the Atlantic, BoE relaxed guidelines last week too, lowering the capital-to-risk-weighted asset ratio to 13% from 14%, which explicitly encourages U.K. banks to lend. Great minds think alike as this stimulates business activity, allowing capital to flow more freely. Barclays, HSBC, and Lloyds will benefit from this development as will borrowers who rely on these banks for funding. 

Bottom line: 2026 will likely see vibrant capital market activity, strong global growth, less regulations and huge CapEx needs, so I am delighted to see that bank capital will be more free flowing for credit-worthy borrowers. Bank lending brings additional competition for private nonbank lenders, but there is enough to go around in an ever-growing economy that relies on debt and equity financing. Private credit will keep its edge as it wins speed, certainty of execution and creativity. ABL and on Capital Solutions - a key element of private credit that goes beyond the scope for many of the bank lending programs. This development should be viewed as a win-win.