Banks have been dealing with the Interagency Guidance on Leveraged Lending since 2013. When first announced jointly by The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, the Guidance on Leveraged Lending was styled as an update on an earlier interagency guidance and provided little in the way of bright line standards. Banks have struggled to understand and comply with it, and the agencies have tried to clarify it several times over the intervening four years.
In addition to being somewhat vague as promulgated, the Guidance on Leveraged Lending was designated not as a “rule” but as a “guidance,” a distinction that may be lost on all but those who are deeply immersed in the details of policy-making in Washington, D.C. — and which may now have a significant impact on the banking industry. Under the Congressional Review Act, Congress is permitted to disapprove — effectively to reject and undo— agency rules finalized within the prior 60 legislative days. The current Congress has availed itself of this right on certain rules in recent months. This right to roll back a rule under the CRA — which also prohibits the agency from attempting to thereafter promulgate similar rules — does not apply to guidance, however.
The designation of the Guidance on Leveraged Lending as something other than a rule is now being questioned by at least one senator. Sen. Patrick Toomey (R-Pa.) has sent a letter to the Government Accountability Office asking whether the Guidance on Leveraged Lending is, in fact, a rule, despite the agencies’ characterization of it as a guidance in 2013. If the GAO agrees that it is a rule, Sen. Toomey claims, the agencies will have to resubmit the Guidance to Congress for review, at which point Congress could reject it.
Whether Congress would move to reject the Guidance on Leveraged Lending remains unclear at the moment, but given the administration’s anti-regulation stance — and Sen. Toomey’s efforts to get the Guidance reclassified — it appears very likely.
Sen. Toomey has requested a response from the GAO by June 1. Banking industry groups are watching the situation closely — and so are we.
Stay tuned for further updates.