OCC & FDIC Ended Sponsor Deal Restrictions

The OCC and FDIC formally rescinded the 2013 Interagency Leveraged Lending Guidance on December 5, ending a 12-year regulatory framework that explicitly shaped the private credit boom¹². The agencies withdrew both the original guidance and the 2014 FAQ, calling them "overly restrictive" and acknowledging they pushed leveraged lending "outside of the regulatory perimeter"¹².

Key developments:

• The 6x leverage ceiling is gone. The 2013 guidance stated that leverage exceeding 6x Total Debt/EBITDA "raises concerns for most industries"³⁴. Banks can now define their own threshold.

• 50% amortization requirement eliminated. The old guidance expected borrowers to repay "a significant portion" of debt over the medium term⁵. That expectation disappears.

• Banks choose their own "leveraged loan" definition. Each institution now sets its own parameters for what constitutes leveraged lending, applied consistently across the bank¹.

• GAO ruling cited as justification. The Government Accountability Office determined in 2017 that the guidance was a "rule" under the Congressional Review Act that should have been submitted to Congress but never was⁶⁷.

• Market share shift targeted. The agencies explicitly stated the 2013 rules caused a "significant drop in leveraged lending market share by regulated banks and significant growth" by nonbanks¹.

• JPMorgan analyst: "potentially sharp" C&I growth. Vivek Juneja at JPMorgan Securities projects the change could accelerate commercial and industrial loan growth significantly at some banks⁸.

• RBC warns of future credit losses. Gerard Cassidy at RBC Capital Markets supports less regulation but expects the rescission will "initially lead to more rapid loan growth but eventually...lead to higher credit losses in the next credit cycle"⁸.

This isn't regulatory fine-tuning. This is the OCC and FDIC admitting they created the conditions for private credit's rise and now trying to reverse a decade of market structure changes. The $1.3 trillion question: Can banks actually reclaim this business⁹?

What Alternative Business Lenders Need to Know About Banks Re-Entering Leveraged Lending

The 2013 Framework That Built Your Market

The 2013 guidance wasn't subtle. It set a 6x Total Debt/EBITDA threshold that examiners used to flag deals, required borrowers to demonstrate ability to repay "a significant portion of total debt over the medium term," and pushed banks to conduct stress testing of leveraged exposures³⁴. The 2014 FAQ clarified that leverage multiples should be calculated at origination based on committed debt, including any accordion facilities⁵.

Here's what that meant in practice: A sponsor-backed deal at 6.5x leverage with limited amortization would trigger examiner scrutiny, potentially requiring the bank to classify the loan as "substandard" at origination or shortly thereafter. Banks could still do those deals, but the regulatory headache made them unattractive⁴²³.

The result? Banks' share of leveraged lending dropped while private credit soared. The U.S. private credit market grew from roughly $260 billion in 2009 to $1.34 trillion by Q2 2024 — a five-fold increase⁹¹². Private credit now accounts for roughly 30% of debt issued by below-investment-grade companies, up from 13% immediately following the global financial crisis¹².

That growth wasn't just regulatory arbitrage — private credit offers speed, certainty, and relationship intensity that banks can't always match. But the 2013 guidance created the opening, and direct lenders filled it.

What Banks Get Back (And What They Don't)

The rescission gives banks three material freedoms they didn't have:

• Freedom 1: Self-defined leverage thresholds. Each bank now determines its own definition of "leveraged loan" and applies it consistently across the institution to identify and control aggregate exposure¹². This means a bank could set its internal threshold at 7x or 7.5x if its risk appetite supports it, without automatic examiner criticism.

• Freedom 2: Flexible amortization expectations. The old guidance expected senior secured debt to fully amortize or "a significant portion of total debt" to be repaid over the medium term³. Banks now assess "capacity to de-lever over a reasonable period" without prescriptive timelines¹. What "reasonable" means is up to each bank's credit policies.

• Freedom 3: No automatic classification triggers. The 2013 framework meant deals exceeding the leverage threshold or with weak repayment profiles could be classified substandard at origination⁵. That disappears. Banks underwrite to their own standards and examiners review "in accordance with general principles of safe and sound lending"².

But here's what banks don't get back: the decade of sponsor relationships, portfolio company knowledge, and deal flow networks that direct lenders built while banks were sidelined.

JPMorgan announced in late 2025 it's committing $50 billion in balance sheet capacity for private credit plus nearly $15 billion from co-lenders¹⁰. That's institutional scale, but it's still playing catch-up to Ares, Apollo, and Blackstone's established sponsor coverage.

Banks also face capital requirements that private credit funds don't. Even with looser leverage rules, Basel III capital treatment for leveraged exposures remains materially more expensive than the leverage structure of a BDC or direct lending fund¹⁴.

How the Competitive Landscape Shifts

Deals under $100 million: This is your core market and likely stays that way. Banks never really left this segment, and their renewed interest will be focused higher in the market where ticket sizes justify the capital deployment¹³. Regional banks may get more aggressive on $50-75 million sponsor deals, but execution speed and relationship intensity still favor direct lenders.

Deals $100-500 million: This is the battleground. The broadly syndicated loan market (BSL) has been taking share back from private credit in 2024-2025, with 15 borrowers refinancing $15.4 billion of private credit deals through mid-June 2025¹⁶. The average borrower saved 192 bps of margin by refinancing in the BSL market since January 2024¹⁶.

Now banks have more flexibility to compete directly. They can price tighter than private credit on creditworthy sponsors, and they can structure deals at 6.5x-7x leverage without regulatory heartburn. That puts pressure on your highest-quality deals.

Deals over $500 million: Banks always owned this segment through syndication. The rescission makes it easier for them to anchor larger tickets, but the real competitive dynamic here is BSL vs. private credit based on pricing and covenant flexibility¹⁶.

Pricing and Terms: Where Banks Press

Banks will press on three fronts:

1. Lower all-in pricing. Average SOFR spreads in the BSL market compressed to S+322 in July 2025 from S+350 in H1 2025¹⁶. Banks with cheaper funding costs can underprice direct lenders on senior secured first lien exposure to high-quality sponsors. The regulatory change gives them room to do this without worrying about examiner criticism.

2. Covenant-lite structures. The BSL market is almost entirely covenant-lite. Private credit competed on covenant packages — financial maintenance covenants, tighter baskets, better lender protections. Some borrowers have been willing to trade those for cov-lite + 192 bps of margin savings¹⁶. That's a tough value prop for sponsors to turn down.

3. Higher leverage tolerance. Private credit's competitive advantage has been willingness to go 7x-8x senior debt when banks were capped effectively at 6x. That advantage narrows. Banks can now comfortably underwrite 6.5x-7x deals if they document capacity to de-lever¹.

Private credit still offers structural flexibility banks can't match — PIK toggles, large delayed-draw term loans, unitranche structures with flexible amortization¹⁶. But the gap narrows on plain-vanilla senior secured deals.

Strategic Responses for Alternative Lenders

• Double down on speed and certainty. Banks will reassess policies and risk frameworks throughout 2025²¹. That means credit committee process, documentation review, and approval timelines that direct lenders can beat. A sponsor choosing between 45-day bank certainty vs. 21-day direct lender execution still picks the direct lender for time-sensitive deals.

• Own the difficult credits. Banks getting back into leveraged lending will cherry-pick the best sponsors and strongest credits first. They're not going to jump into turnaround situations, distressed M&A, or companies with lumpy cash flow profiles. That's still your market. Lean into credit skill and workout expertise.

• Defend sponsor relationships aggressively. The biggest risk isn't pricing compression — it's losing sponsor relationships as banks rebuild coverage. If a top-tier PE shop that's been a core relationship for five years suddenly gets competitive BSL pricing on their A+ deals, they may route easier transactions to banks and save you for the harder stuff. That's relationship deterioration, and it's how you lose market position.

Counter this by deepening relationships: expand to minority capital, NAV financing, continuation fund financing, or other structures where banks aren't competitive¹⁰¹¹. Give sponsors reasons to keep you in the flow beyond vanilla buyout debt.

Expand into asset-backed and specialty finance. Banks face pressure on long-duration assets and higher-risk commercial real estate¹⁵. McKinsey projects $30+ trillion addressable market for private credit if nonbanks expand into asset-backed finance, infrastructure finance, jumbo residential mortgages, and higher-risk CRE¹⁵. That's where banks are retrenching, not expanding. Follow the capital.

What Gets Ugly in the Next Downturn

RBC's Gerard Cassidy is right to worry about credit losses. The 2013 guidance was written in the shadow of the financial crisis specifically to prevent banks from loading up on leveraged risk at the top of the cycle⁴. Now that constraint disappears just as private equity dry powder hits record highs ($1.6 trillion forecast for 2024)¹⁰ and aging portfolio companies need to be exited.

Over 30% of private equity-backed companies had been held by fund managers for at least five years by the end of 2024, the highest percentage in nearly a decade¹¹. Those exits will happen, and sponsors will push for maximum leverage to hit return hurdles.

Banks eager to rebuild market share may underwrite aggressively. Add looser regulatory constraints, competitive pressure from private credit, and a potential economic slowdown, and you get a setup for elevated defaults in 2027-2028.

For alternative lenders, this means: be disciplined on structure even as banks get aggressive on leverage. The deals you pass on today because they're too levered at 7.5x will be the deals that default in 30 months. Let banks take that risk if they want it.

1-Minute Video: 20 to 200 Loan Applications: Should You Automate SOS Verification?

If you are funding five deals a month, you don't need an API.

You can have your junior analyst visit the Secretary of State website, complete the CAPTCHA, search the name, and screenshot the result. It takes 10 minutes. It costs you effectively nothing.

But if you are funding 50, 500, or 5,000 deals a month, that "free" search becomes your most expensive bottleneck.

We designed the Cobalt Intelligence Secretary of State (SOS) API for specific lending profiles. Here is the breakdown of who actually sees ROI from this integration, and frankly, who should stick to manual searches.

Schedule a FREE demo call

Headlines You Don’t Want to Miss

Monroe Capital Launches Enhanced Corporate Lending Fund (MLEND)

Monroe Capital has launched the Monroe Capital Enhanced Corporate Lending Fund (MLEND), a perpetual-life, non-traded business development company aimed at income-focused retail investors seeking exposure to its direct lending strategy. The fund targets consistent current income and attractive risk-adjusted returns by investing primarily in diversified senior secured loans to lower middle market and technology-enabled companies across sectors such as software, business services, and healthcare, with monthly subscriptions and limited quarterly liquidity via share repurchases beginning in late 2027.

Blackstone Secured Lending Stock: Dividend Cut Unlikely (BXSL)

Analysts currently view a dividend cut for Blackstone Secured Lending (BXSL) as unlikely through at least 2026, given that its net investment income continues to cover the quarterly dividend of about 0.77 dollars per share with a coverage ratio above 100 percent and additional spillover income as a buffer. The fund’s mostly first-lien, senior secured loan portfolio, conservative leverage, and maintained 0.77 dollar quarterly payout at an 10–11 percent yield range support this outlook, though a future decline in interest rates remains a key risk factor to monitor.

Andalusian Credit Partners Announces Record Q3 2025 Direct Lending Origination

Andalusian Credit Partners reported its most active deployment quarter since inception in Q3 2025, committing approximately 130 million dollars across seven new first lien senior secured loan transactions to a mix of non-sponsored and sponsor-backed middle market borrowers. The record origination activity underscores the firm’s growing direct lending platform and diversified sector reach, including financings in multi-brand quick-service restaurant franchises, test and measurement solutions, media, and consumer products businesses.​