Regulators Delay Rulemaking on Big Bank Failures

WASHINGTON D.C. – The Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC) are kicking the can down the road on proposed rules aimed at preventing another catastrophic bank failure. The agencies announced today they’re extending the comment period for an advance notice of proposed rulemaking concerning “large bank resolvability” – essentially, how to dismantle a failing mega-bank without triggering a broader economic meltdown – until January 23, 2023.

The original deadline for public feedback was December 23, 2022. The extension, the agencies claim, is to give interested parties “more time to analyze the issues and prepare their comments.” But sources within the financial watchdog community whisper that this is a tactic to delay implementing stricter regulations, particularly a proposed requirement for long-term debt, which would force banks to hold more capital as a buffer against losses.

The advance notice of proposed rulemaking outlines several potential requirements and resources regulators could use to ensure an orderly resolution of large banking organizations. The core of the debate revolves around how to avoid repeating the 2008 financial crisis, where the collapse of Lehman Brothers sent shockwaves through the global economy and required massive taxpayer bailouts. The goal is to ensure that if a large bank *does* fail, it can be unwound without relying on public funds or destabilizing the entire system.

Critics argue that the delay is a victory for the banking lobby, which has been aggressively opposing stricter capital requirements. They point to the recent turmoil in the regional banking sector – the failures of Silicon Valley Bank and Signature Bank earlier this year – as evidence that regulators are already behind the curve. “These banks are too big to fail, and too connected to allow for a clean break,” says financial analyst Sarah Chen. “The longer they delay, the greater the risk.”

The proposed rules focus heavily on the concept of “resolution planning,” requiring large banks to submit detailed plans outlining how they would be dismantled in an orderly fashion. This includes identifying critical functions, mapping interdependencies, and ensuring access to sufficient resources. The long-term debt requirement is seen as a key component, providing a source of capital that can be used to absorb losses during a resolution without triggering a run on the bank.

The FDIC contact for media inquiries is Julianne Fisher Breitbeil, (202) 340-2043. The agencies released a joint statement on December 15, 2022, announcing the extension. The Grimy Times will continue to monitor this situation closely, as the fate of these regulations could have significant implications for the stability of the financial system and the wallets of American taxpayers. The attached document, “Resolution–Related Resource Requirements for Large Banking Organizations; Extension of Comment Period,” provides further details on the proposed changes.