- US regulators have ended 2013 leveraged lending guidance, citing its unintended impact of shifting risky lending to nonbanks.
- The rollback is one of several steps taken in 2025 to ease bank regulations, despite rising concerns over CRE loan vulnerabilities.
- Reduced transparency and weaker underwriting standards could further strain banks already exposed to CRE, particularly in office and multifamily sectors.
A Rule Unwound
The Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC) have officially withdrawn a post-2008 regulatory measure: the 2013 leveraged lending guidance. Originally intended to curb risky corporate loans by ensuring banks implemented sound underwriting and stress testing, regulators now argue the guidance functioned more like a binding rule—one that was never properly submitted to Congress.
According to Globe St, in their joint statement, the agencies said the rule had unintentionally pushed leveraged lending into nonbank territory, reducing oversight and increasing systemic risk outside the regulatory perimeter.
One of Several 2025 Rollbacks
This latest regulatory reversal comes amid a broader trend. In early December, federal regulators loosened capital requirements for large banks, cutting the extra leverage cushion associated with Treasury holdings. The move aims to encourage big banks to buy more long-term government debt, pushing yields lower and easing government borrowing costs. That shift has already prompted a visible increase in Treasury demand among major financial institutions, reinforcing the intended effect of the rule change.
In September, another rule change allowed banks to report only loan modifications made in the past 12 months—a shift that applies to CRE loans. Critics warn the change obscures risk by removing older distressed loans from disclosure, limiting visibility into banks’ balance sheets just as CRE faces refinancing challenges tied to rising rates and falling valuations.
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CRE on Shaky Ground
The Federal Reserve’s December 2025 Supervision and Regulation Report flags ongoing concern about commercial real estate exposures, especially among community and regional banks. With 3,367 community banking organizations (CBOs) and 100 regional banking organizations (RBOs) in the US, these institutions hold significant CRE loan portfolios that are increasingly vulnerable to stress.
Although the US hasn’t faced a full-blown financial crisis since 2008, many of the executives who led institutions through that era have retired, and today’s leadership may lack direct crisis experience—raising concerns about how prepared the system really is.
Why It Matters
By peeling back regulations, regulators are betting that the banking system can handle more risk without repeating past mistakes. But that bet could backfire, particularly in CRE markets already under pressure. Historical cycles suggest that financial disruptions recur every decade or so, and the warning signs—rising delinquencies, regulatory opacity, and weakening oversight—are increasingly hard to ignore.
What’s Next
For CRE investors and professionals, the current regulatory shift demands caution. With rules loosening and oversight diminishing, it’s more critical than ever to factor risk management and historical context into investment strategies. A resilient approach may not prevent the next downturn—but it can prepare stakeholders to weather it.
