Banking Regulators Propose Long-Term Debt Requirement for Larger Banks

Posted: Aug 30 2023

Banking regulators have unveiled a proposed long-term debt requirement for banks with more than $100 billion in assets. The requirement is part of a package of proposed rulemakings that the FDIC, OCC and Federal Reserve have been pursuing since before the recent bank failures.
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Under the proposed rule, a covered bank would be required to have a minimum outstanding amount of eligible long-term debt that is at least 6% of the institution’s total risk-weighted assets, 2.5% of its total leverage exposure (if it is required to maintain a minimum supplementary leverage ratio) and 3.5% of its average total consolidated assets, whichever is greater. Banks would have three years to comply with the requirement after the date they become subject to the rule, but partial compliance would be scaled up during the phase-in period.
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The FDIC board unanimously voted in favor of moving forward with the proposal. Chairman Martin Gruenberg said the agency anticipated the proposed requirement would marginally increase funding costs for covered banks and result in a decline of net interest margins of about three basis points. While voting to advance the proposal, FDIC Vice Chairman Travis Hill and board member Jonathan McKernan said they had reservations that need to be addressed in coming months. “We need to acknowledge bank failures are an inevitable feature of a dynamic and innovative economy, and we should plan for those bank failures by focusing on strong capital and an effective resolution framework as our best hope for putting an end to the habit of privatizing gains and socializing losses,” McKernan said.

To read the FDIC staff memo, visit: https://www.fdic.gov/news/board-matters/2023/2023-08-29-notice-dis-a-mem.pdf

To read the proposed rule, visit: https://www.fdic.gov/news/board-matters/2023/2023-08-29-notice-dis-a-fr.pdf