Big Banks Face New Rules on ‘Living Wills’ and Debt in Wake of Crisis

In response to the regional banking crisis that rocked the industry this spring, federal financial authorities are putting forth new regulations regarding larger banks’ living wills and holdings of long-term debt.

Regarding two proposals that would update financial rules for large banks, the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency all requested comments.

This comes after a trio of sizable regional banks fell in the spring, mostly as a result of their exposure to interest rate risk and relatively sizable sums of uninsured deposits, causing the U.S. banking sector to undergo three of the four greatest bank failures in its history.

In order to promote financial stability and make it simpler to deal with the probable failure of a covered large bank, one proposed rule would require major banks with $100 billion or more in total assets that aren’t recognized as global systemically important institutions to hold a layer of long-term debt.

According to the regulators, the recent failures of three sizable banks have highlighted the value of additional, loss-absorbing resources that regulators can employ to resolve banks in a way that lowers costs and the risk of a disruption to the banking system.

The idea would improve the alternatives available to resolve such banks in event of failure by forcing each large bank to retain a certain level of long-term debt to absorb losses.

FDIC’s Proposed Resolution Planning Rules Would Expand to Banks with $50 Billion in Assets

big-banks-face-new-rules-on-living-wills-and-debt-in-wake-of-crisis — In response to the regional banking crisis that rocked the industry this spring, federal financial authorities are putting forth new regulations regarding larger banks’ living wills and holdings of long-term debt.

To make the transition for banks easier, the law would have a three-year phase-in period and permit larger banks with specific outstanding long-term debt to count such liabilities against the regulation’s minimum debt criteria.

The second suggestion is a new set of guidelines that would be applicable to international banks and bank holding companies with assets totaling over $250 billion as long as they are not among the biggest and most complicated financial institutions, which are already required to have resolution plans or living wills.

According to the regulators, the new guideline is concentrated on potential weak points like capital, liquidity, and operational capabilities that may be required to address a bank failure.

This guideline would outline agency standards for single and multiple point of entry techniques that businesses may employ to aid in their swift and orderly resolution, in contrast to the living wills the largest and most complex banks are expected to maintain.

Rob Nichols, president and chief executive officer of the American Bankers Association (ABA), said in a statement that the new rules, which the FDIC has proposed, are another step in the wrong direction because they would expand resolution planning rules for banks with as little as $50 billion in assets and impose long-term debt requirements for banks with assets of $100 billion or more.

By November 30, 2023, public feedback on the proposed regulations must be received.

Source: Fox News