Regulators Extend Long-Term Debt Comment Period
The Federal Reserve, Federal Deposit Insurance Corp. (FDIC), and the Office of the Comptroller of the Currency (OCC) have extended the comment period for the proposed rule mandating long-term debt requirements for additional large banks. The new deadline for comments is January 16th, 2022.
This extension was granted to allow interested parties more time to analyze the issues and prepare their comments, according to a joint statement issued by the regulators. The original deadline was set for November 30th but was extended due to increasing criticism from the industry and lawmakers, who have raised concerns about the severity of the regulatory decisions made following the banking turmoil that began in March.
In addition to the long-term debt comment period, the regulators have also extended the comment period related to a July proposal to revamp capital requirements for banks with $100 billion or more in assets. As part of this effort, they have launched an initiative to collect more data from the banks affected by the capital requirements proposal.
The proposed rule aims to increase the amount of capital that U.S.-based global systemically important banks (G-SIBs) must hold by 19%. Currently, only G-SIBs are required to maintain long-term debt as part of their total loss absorbing capacity. The new proposal would extend this requirement to banks with more than $100 billion in assets.
The plan would require these banks to issue more long-term debt, which would help improve the orderly resolution of banks in case of failure. Under the new proposal, large banks would be required to maintain a minimum amount of eligible long-term debt equal to 3.5% of average total assets or 6% of risk-weighted assets, whichever is greater. The FDIC has stated that banks would have three years to comply with the final rule after its adoption.
The regulators’ efforts to address systemic vulnerabilities were prompted by the collapse of Silicon Valley Bank, Signature Bank, and First Republic Bank earlier this year. FDIC Chair Martin Gruenberg highlighted the need for stricter regulations to protect uninsured depositors and prevent similar failures in the future.
However, banking trade groups have raised concerns about the lack of transparency in the proposed rule. In a letter to the Fed, OCC, and FDIC, the Bank Policy Institute and others argued that the agencies have relied on non-public information in their analysis, which violates requirements under the Administrative Procedure Act.
Federal Reserve Governor Michelle Bowman has also expressed reservations about the proposed regulatory changes, stating that capital alone cannot replace sound risk management and supervision. She believes that improvements can be made without overhauling the existing frameworks and that regulatory reform can potentially pose financial stability risks if not properly implemented.
Overall, the extension of the comment period for the proposed long-term debt requirements and capital revamp is a response to industry and lawmaker concerns. The regulators aim to strike a balance between strengthening the financial system and ensuring that the regulations are practical and transparent.
Frequently Asked Questions:
1. What is the purpose of the extended comment period for long-term debt requirements?
The comment period has been extended to allow interested parties more time to analyze the issues and prepare their comments.
2. Why are the regulators facing criticism for their regulatory decisions?
The regulators have been criticized for the severity of their regulatory decisions following the banking turmoil that began in March.
3. What is the proposed rule regarding long-term debt requirements for banks?
The proposed rule mandates that additional large banks hold long-term debt as part of their total loss absorbing capacity.
4. How much long-term debt would banks be required to maintain under the new proposal?
Large banks would be required to maintain a minimum amount of eligible long-term debt equal to 3.5% of average total assets or 6% of risk-weighted assets, whichever is greater.
5. How long do banks have to comply with the final rule?
Banks would have three years to comply with the final rule after its adoption.
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| Regulators | Extended Deadline |
|---|---|
| Federal Reserve | January 16, 2022 |
| FDIC | January 16, 2022 |
| OCC | January 16, 2022 |
