Another post-Global Financial Crisis banking rule is falling away. The Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency have announced an end to 2013 guidance about leveraged lending.
This is one of multiple steps taken this year to reverse restrictions on banks, even as the Federal Reserve has continued its concern over too much exposure to CRE loans, particularly in office and multifamily.
As the original rule stated: “Recent financial crises underscore the need for financial institutions to employ sound underwriting, to ensure the risks in leveraged lending activities are appropriately incorporated in the allowance for loan and lease losses and capital adequacy analyses, monitor the sustainability of their borrowers' capital structures, and incorporate stress-testing into their risk management of leveraged loan portfolios and distribution pipelines.”
Now, the new take in a statement by the two agencies was critical of the restrictions on the 2013 guidance and claimed that it resulted in "a significant drop in leveraged lending market share by regulated banks and significant growth in leveraged lending market share by nonbanks, pushing this type of lending outside of the regulatory perimeter."
The two agencies also note that the original guidance was effectively a rule and should have been submitted to Congress for review, but wasn’t.
This isn’t the first change to banking regulations this year. Earlier this month, regulators signed off on a long-sought easing of capital rules for the largest U.S. banks, cutting the extra leverage cushion tied to Treasury holdings in a move meant to free up balance sheets and encourage more government bond buying.
Supporters inside the administration have argued since early 2025 that reducing the enhanced supplementary leverage ratio or the eSLR would prompt big banks to buy more long-term government debt, especially 10-year Treasury notes. The expectation is that heavier bank demand would raise prices on those securities. And because yields move inversely to prices, higher prices would translate into lower yields, easing the government’s debt-service costs and putting downward pressure on longer-term borrowing rates such as mortgages.
Early in September, U.S. banking regulators approved a rule change to allow banks to report loan modifications only made within the past 12 months. That shift includes commercial real estate loans, where higher interest rates and falling property valuations are already straining borrowers’ ability to refinance.
The change means older troubled loans will roll out of reporting, reducing visibility into potential risks on banks’ balance sheets. That will make it harder to track troubled loans. It has drawn sharp criticism from academics and industry specialists who warn that it adds opacity to already fragile financial markets.
The GFC was not the broad financial disaster in the U.S. Those typically happen every 10 to 15 years. But the cycle length ensures that many top executives responsible for decisions that led to disaster and who had to deal with the consequences, had retired or were on their way out. Up-and-coming people about to step up within organizations were either at the perimeter of action in the previous event or hadn’t fully experienced it. Complicating the landscape is that each problem tends to happen under different particulars.
Should something happen, CRE is poorly positioned to weather storms. The Federal Reserve’s December 2025 Supervision and Regulation Report expressed concerns about CRE loan delinquencies at community banking organizations (CBOs, 3,367 in the U.S.) and regional banking organizations (RBOs, 100 in the U.S.).
Perhaps nothing will go wrong again, but that would be betting against many decades of U.S. economic history. CRE professionals should look at the past and consider how to interpret the present for the most effective strategy and investment.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.