BPI Statement on Long-Term Debt, Resolution Proposals

Washington, D.C. — Bank Policy Institute President and CEO Greg Baer issued the following statement on the long-term debt and resolution proposals released today by the FDIC:

“These proposals attempt to fit regional and midsize banks into a regulatory mold designed for the largest globally active banks, a weakening of the bipartisan tailoring framework enacted by Congress. Regional banks have already developed credible resolution plans that reflect their structures, operations and risk profiles. Unlike GSIBs, which may have subsidiaries in multiple countries or other complex considerations, regional banks’ resolution framework is not based on a ‘capital refill’ standard because other resolution options are more appropriate for these banks.

Moreover, the proposals come on the heels of a proposed increase to capital requirements for the same banks. The agencies must consider the complete picture—and give a thorough accounting of the complete costs and benefits—of these proposals. Without careful consideration and calibration, there is a risk these proposals could damage the institutions they seek to strengthen and restrict vital financing to small businesses in the process.”

Here’s the background: Today’s long-term debt proposal, issued jointly with the Federal Reserve and OCC, would require banks with at least $100 billion in assets to issue long-term debt to absorb losses in a failure, a measure previously only applied to GSIBs. The FDIC also proposed a comprehensive revision to resolution requirements. The proposals reflect a larger effort by the banking agencies to make regulatory requirements for banks of this size resemble the framework for the very largest GSIBs in the wake of the spring bank failures – and to place blame for the failures on the tailoring framework. New resolution and long-term debt requirements for midsized banks are not the answer to these failures and distract from the real culprits, which were management and supervisory failures related to liquidity and interest rate risk. Furthermore, we are disappointed that the FDIC still has yet to give a full accounting of what went wrong in its resolution of Silicon Valley Bank, or propose more meaningful improvements to its internal processes for resolving failed banks. 

Why it matters: New long-term debt and resolution requirements could impose substantial costs on midsize and regional banks, in the face of other economic pressures and a proposed significant increase to capital requirements. A healthy banking system depends on having a diverse range of banks of different sizes, able to support a diverse range of businesses. Indiscriminate increases to regulatory requirements without proper calibration or appropriate consideration of costs could make it harder for midsize banks to thrive and grow, putting their important role in the economy in jeopardy.

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About Bank Policy Institute.

The Bank Policy Institute (BPI) is a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks and their customers. Our members include universal banks, regional banks and the major foreign banks doing business in the United States. Collectively, they employ almost 2 million Americans, make nearly half of the nation’s small business loans, and are an engine for financial innovation and economic growth.

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