Banking Agencies Propose Long-Term Debt Requirements for Large Banks

The OCC, the Federal Reserve Board ("FRB") and the FDIC proposed long-term debt ("LTD") requirements for large banking entities, holding companies, foreign banking organizations and large insured depository institutions ("IDIs") to facilitate resolvability in the event of failure and to reduce the risk of contagion within the financial system.

According to an accompanying fact sheet, the proposal applies to institutions with more than $100 billion in total consolidated assets and would "not materially change the existing requirements already in place for the largest and most complex banks (i.e. U.S. global systemically important banks, or GSIBs)."

The banking agencies stated that because LTD absorbs losses before deposits, LTD requirements for covered IDIs would provide the FDIC with "greater flexibility" by allowing the FDIC to transfer all deposit liabilities of a failed IDI to a bridge depository institution consistent with the FDI Act's least-cost requirement.

Comments on the proposal are due by November 30, 2023.


FDIC Chair Martin J. Gruenberg called the proposal a "meaningful step" towards improving the likelihood of an orderly resolution for large banks without invoking the "systemic risk exception." He pointed to the recent bank failures, which he said "underscored the agencies' urgency" in putting forth a proposal that facilitates resolution across varying scenarios and is least costly to the Deposit Insurance Fund. Mr. Gruenberg stated that (i) the proposal includes a three-year transition period to allow for banks to meet their debt requirements and (ii) the agencies "carefully considered" the costs that may be incurred under the proposal by banking entities.

FRB Governor Michelle W. Bowman agreed that targeted changes to supervision and regulation are needed in light of recent bank failures, but argued that the changes should be focused on "core banking risks," including liquidity and interest rate risk and "shortcomings within the [FRB's] supervisory approach." She stated that the proposal issued by the banking agencies would create "significant costs on firms without clear articulation of the benefits" and potentially "erode the current risk-based, tailored regulatory framework." Further, Ms. Bowman said that the proposal lacks information necessary for commenters to conduct an analysis of the costs and benefits.

FRB Governor Christopher J. Waller expressed concern that the regulatory framework for large banks is "moving in a direction that does not tailor requirements in a manner consistent with the spirit of the Dodd-Frank Act."

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