On Nov. 5, the federal banking regulatory agencies1 (the Agencies) gave notice of a proposed rule (the Proposed Rule) that would elevate to the status of a formal rule and enhance the Agencies' current policy of not issuing supervisory criticisms for violations of 2013 Interagency Guidance on Leveraged Lending (the “Leveraged Lending Guidance”). That policy was set forth in the Interagency Statement Clarifying the Role of Supervisory Guidance issued on Sept. 11, 2018 in response to the General Accounting Office's having determined in October 2017 that the Leveraged Lending Guidance was a “rule” that could not take effect until submitted for review by Congress (which under the Congressional Review Act may reject a rule). The Leveraged Lending Guidance has never been submitted to Congress for such review.

The Proposed Rule, if enacted, would prohibit the Agencies from changing their policy of not issuing supervisory criticism for failures to comply with the Leveraged Lending Guidance. Even though the Leveraged Lending Guidance was not properly promulgated as a rule and, accordingly, the violation of it cannot be an independent grounds for sanction under banking laws, the Agencies may nonetheless issue various forms of “criticism” for failure to comply with it, such as identifying “matters requiring attention” and “matters requiring immediate attention.” The failure to remedy such matters may itself form the basis of sanction, particularly under the broad authority of the Agencies to prohibit “unsafe or unsound” practices.

The Proposed Rule would also make it clear that the term “criticism” includes a broad range of supervisory actions, including the issuance of matters requiring attention, matters requiring immediate attention, matters requiring board attention, documents of resolution and supervisory recommendations.

Comments to the Proposed Rule, the text of which can be found here, are due no later than Jan. 4, 2021.

It is possible that the Proposed Rule could be enacted prior to noon on Jan. 20, 2021, the time of the commencement of the next presidential term. If that occurs (and assuming the Proposed Rule as enacted would not be rejected by both houses of Congress under the Congressional Review Act), the Biden Administration would be required to have the Agencies promulgate a new rule to repeal the Proposed Rule.


1 The Office of the Comptroller of the Currency, Treasury; the Board of Governors of the Federal Reserve System; the Federal Deposit Insurance Corporation; the National Credit Union Administration; and the Consumer Financial Protection Bureau.

Originally Published by , November 2020

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