Comptroller of Currency’s Comments Sow Further Doubt in Leveraged Lending Guidance

Joseph Otting, President Trump’s pick for the head of the Office of the Comptroller of the Currency (the “OCC”) who was confirmed in November, has cast further doubt on the authority of the Leveraged Lending Guidance (the “Guidance”). The Guidance was originally published in March 2013 by the OCC, the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation.

In the years since, the Guidance has reshaped the leveraged lending landscape, restricting leverage levels and increasing the role of non-regulated lending institutions. This past October, the enforceability of the Guidance came under question after the Government Accountability Office determined that the Guidance was a “rule” under the Congressional Review Act and that Congress was therefore owed an opportunity to review and reject the rule. Since then, the agencies behind the Guidance have reportedly begun work on a revised Guidance, possibly to submit to Congress.

On February 27th, Mr. Otting, a former executive at OneWest Bank, told a conference audience that “Institutions should have the right to do the leveraged lending they want, as long as they have the capital and personnel to manage that and it doesn’t impact their safety and soundness. Meaning that if they did a ton of that and it was highly concentrated and started to deteriorate, then that is where we would be concerned from a safety and soundness basis.”

Mr. Otting expanded that, so long as banks’ lending decisions are not impairing safety and soundness, “It’s not our position to challenge [those decisions].”

Mr. Otting also noted that he expected leverage levels to “float up” over time.

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