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Banks on the Hook: Feds Propose Rule to Keep ‘Em Solvent
The Federal Reserve, FDIC, and Office of the Comptroller of the Currency are cracking down on the nation’s largest banks, proposing a rule that would require them to maintain a layer of long-term debt.
The move comes on the heels of the recent failures of three large banks, which have highlighted the need for banks to have supplementary resources to absorb losses. The proposed rule would increase the resolvability and resiliency of large banks, reducing the risk of bank runs and contagion.
Under the proposal, banks with total assets of $100 billion or more would be required to maintain a minimum amount of long-term debt. This would give regulators more options for resolving banks in case of failure, and reduce the risk of uninsured depositors facing losses.
The rule would also prohibit large banks from engaging in certain activities that could complicate their resolution, and disincentivize them from holding long-term debt issued by other banks.
The proposal would provide a three-year phase-in period, and would allow certain outstanding long-term debt to count toward the minimum requirements. This would give banks a reasonable period to transition to the required characteristics of eligible long-term debt instruments.
Comments on the proposal are due by November 30, 2023. The move is seen as a key step in boosting financial stability, and reducing the risk of bank failures.
The proposed rule is designed to address the specific risks faced by large banks that are not global systemically important banks (GSIBs). It would not materially change the existing requirements for GSIBs, and would provide a more tailored approach to regulating large banks.
The FDIC’s Chairman, Martin J. Gruenberg, released a statement in support of the proposal, citing the need for banks to have supplementary resources to absorb losses.
Key Facts
- Agency: FDIC
- Category: Financial Crimes
- Source: Official Source â†â€â€ÂÂ
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