BPI Comments on Proposed Rule Requiring Long-Term Debt Maintenance

Ladies and Gentlemen:

The Bank Policy Institute[1] appreciates the opportunity to comment on the joint notice of proposed rulemaking issued by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency (the “Agencies”) that would require certain large depository institution holding companies (“Covered Holding Companies”), certain U.S. intermediate holding companies (“Covered IHCs”) of foreign banking organizations (“FBOs”), and certain insured depository institutions (“Covered IDIs” and, together with Covered Holding Companies and Covered IHCs, “Covered Entities”) to issue and maintain outstanding a minimum amount of long-term debt (“LTD”).[2]

Executive Summary

As proposed, the LTD requirements would be much costlier than the Agencies estimate. To adjust for these costs, the Agencies should fundamentally reconsider the structure of the proposed requirements, including the proposal’s calibration and the internal LTD requirement. As explained throughout this letter, it is unclear whether the LTD requirements, as proposed, are necessary to achieve the proposal’s intended objectives, but there is no question that they would impose sizable costs on Covered Entities and the broader economy. Therefore, we urge the Agencies to reconsider the design, application, calibration, and other aspects of the proposed LTD requirements as recommended in this letter. The recommended changes are necessary to mitigate the significant actual costs of the proposed LTD requirements.

Our comments proceed as follows:

  • Section II recommends that the Agencies finalize any new LTD requirement only after any Basel III Endgame rule has been implemented. The Agencies should thoroughly consider the effects of any capital changes on the calibration of an additional loss-absorbing capacity requirement among Covered Entities.
  • Section III demonstrates that the costs of the LTD proposal are significantly underestimated and describes the adverse impact the proposed requirements would have. BPI estimates that the costs of the proposed LTD requirements would be three times the estimate in the proposal.
  • Section IV recommends that the Agencies: (i) adopt an alternative calibration of two percent of risk-weighted assets (“RWAs”) (and revise any leverage-based LTD requirements commensurately); (ii) differentiate the proposed requirements based on the statutory tailoring framework; and (iii) eliminate or significantly revise the proposed internal LTD requirement. These recommended changes would help to correct for the higher cost estimates described in Section III.
  • Section V shows that the minimum denomination requirement for LTD is unsupported, would negatively affect market depth and liquidity, and would be inconsistent with the disclosure-based framework of the federal securities laws and long-standing aspects of the bank capital framework.
  • Section VI recommends the Federal Reserve provide additional exemptions to the general prohibition on top-tier holding companies entering into qualified financial contracts (“QFCs”) with third parties, both in the current LTD proposal and in the existing TLAC rule and recommends that the clean holding company requirements not apply to banking organizations that do not have single point of entry (“SPOE”) resolution strategies.
  • Section VII recommends other adjustments and clarifications related to the existing TLAC rule.
  • Section VIII makes several additional technical recommendations and clarifications on the proposed LTD requirements.

To read the full comment letter, please click here, or click on the download button below.


[1] BPI is a nonpartisan public policy, research, and advocacy group, representing the nation’s leading banks and their customers. BPI’s members include universal banks, regional banks, and major foreign banks doing business in the United States. Collectively, they employ almost two million Americans, make nearly half of the nation’s small business loans, and are an engine for financial innovation and economic growth.

[2] See Long-Term Debt Requirements for Large Bank Holding Companies, Certain Intermediate Holding Companies of Foreign Banking Organizations, and Large Insured Depository Institutions, 88 Fed. Reg. 64,524 (Sept. 19, 2023).