Banking and Finance Law Daily Wrap Up, FINANCIAL STABILITY—BPI scrutinizes OCC bulletin on venture loans, (Jun 12, 2025)

By Shashi Kant, BALLB, LLM

BPI asserts that the OCC venture-loan bulletin stifles credit to small companies, equates manageable risk with unsafe practice, and sidesteps rulemaking safeguards.

The Bank Policy Institute (BPI) has issued a note discussing the practical impact of Office of the Comptroller of the Currency (OCC) bulletin 2023-34, which addresses “venture loans” to early-, expansion- and late-stage companies. BPI contends that the bulletin, though styled as guidance, functions as a prohibition that curtails credit to firms that historically drive U.S. employment and innovation.

OCC bulletin on venture loans. Bulletin 2023-34 explains that venture lending supports new business formation but involves borrowers “that may not exhibit sustainable positive cash flows or collateral to support loan repayment.” The OCC therefore expects banks to perform strong underwriting, maintain robust documentation, and apply credit enhancements commensurate with the higher probability of borrower failure. Examiners are instructed to scrutinize commitments lacking adequate assessment of repayment capacity and to determine whether such credits merit supervisory criticism. The bulletin applies to national banks of all sizes and references the Interagency Guidelines Establishing Standards for Safety and Soundness as the benchmark for risk-management practices.

Criticism. BPI argues that the bulletin was released without notice-and-comment and cites no empirical evidence linking venture-loan performance to systemic instability. The paper draws a parallel to the agencies’ 2013 leveraged-lending guidance, later deemed a “rule” under the Congressional Review Act, suggesting that a similar procedural flaw exists here. The authors describe the bulletin’s practical effect as “choking off credit” to companies that fuel much of U.S. economic growth, including in smaller cities where regional banks are active.

Treatment of non-pass risk ratings. The central criticism concerns a single sentence in the bulletin: “Venture loans originated with a non-pass risk rating are inconsistent with safe and sound lending standards.” Under the uniform loan-classification system, non-pass encompasses special mention, substandard, doubtful and loss categories. A special-mention asset, however, is defined as displaying potential, not confirmed, weaknesses and “does not expose an institution to sufficient risk to warrant adverse classification.” BPI contends that equating special-mention venture loans with unsafe or unsound practice effectively bans a broad range of credits, regardless of underwriting quality, reserves, stress testing, or loan pricing.

Supervisory process. According to BPI, the bulletin’s reference to “safe and sound lending standards” invokes the OCC’s enforcement power under 12 U.S.C. § 1818, which authorizes penalties for unsafe or unsound practices, defined by federal courts as actions that threaten a bank’s financial integrity. The note asserts that OCC examiners treat guidance, handbooks, and bulletins as binding rules during examinations, making deviation grounds for sanction even though the bulletin itself was not issued as a formal regulation. BPI characterizes this dynamic as “unlawful conduct by a federal banking agency” and links it to wider concerns about guidance that bypasses the Administrative Procedure Act and the Congressional Review Act.

Potential effects on venture lending. BPI warns that start-ups lacking positive cash flow could lose access to lower-cost bank credit and become more reliant on non-bank lenders. The authors argue that venture lending has historically helped firms transition from seed capital to larger equity rounds or public-market financing, and that limiting this channel may slow job creation. Conversely, the OCC emphasizes that venture borrowers warrant heightened oversight because repayment often depends on future fundraising, liquidity coverage of cash burn or secondary sources such as asset sales (see Banking and Finance Law Daily, Nov. 2, 2023).

Companies: Bank Policy Institute

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