WASHINGTON D.C. – In a direct response to the spring’s banking chaos, federal regulators are demanding that banks with $100 billion or more in assets build up a cushion of long-term debt. The move, announced today by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency, is designed to prevent another taxpayer-funded bailout and force failing institutions to absorb losses before contagion spreads.
The proposal, stemming from an advance notice issued last October, is a blunt admission that the existing system nearly buckled under the weight of recent failures. Regulators are explicitly seeking “supplementary, loss absorbing resources” – in layman’s terms, money banks can lose without triggering a full-blown panic. The collapse of three large banks earlier this year served as a stark reminder of just how quickly a lack of preparedness can unravel the financial system.
The core of the proposal requires these large banks – those *not* designated as “global systemically important banks” (GSIBs), which already have stricter rules – to maintain a minimum amount of long-term debt. This debt would act as a buffer, absorbing losses in the event of failure and ideally reducing the need for government intervention. Officials believe this will also slow down bank runs by lessening the risk to uninsured depositors, and limit the ripple effect when a bank shows signs of distress.
Beyond the debt requirement, the agencies are also looking to restrict certain activities that could complicate a bank’s resolution. They plan to discourage banks from holding long-term debt issued by other banks, aiming to reduce interconnectedness and limit the potential for a domino effect. This is a clear signal that regulators are concerned about the systemic risk posed by large, interconnected financial institutions.
The agencies are offering banks a three-year phase-in period and will allow some existing debt to count towards the new requirements, providing a path for compliance. However, the message is clear: the era of letting banks gamble with depositor money while expecting a government safety net is coming to an end. Comments on the proposed rule are due by November 30, 2023.
FDIC Chairman Martin J. Gruenberg issued a statement accompanying the proposal, emphasizing the need for proactive measures to bolster the stability of the banking system. The full proposed rule and a detailed fact sheet are available on the FDIC website. The Grimy Times will continue to follow this developing story and report on any attempts to water down these crucial protections.
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Key Facts
- Agency: FDIC
- Category: Fraud & Financial Crimes
- Source: Official Source ↗
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