Federal Banking Agencies Propose Significant Rules and Guidance Related to Regional Bank Long-Term Debt and Resolvability
On August 29, 2023, the federal banking agencies issued a cascade of proposals that, if finalized, would continue the agencies’ trek to dramatically increasing regulatory requirements for mid-sized banking organizations and eliminating the “tailoring” distinctions based on size that were implemented by extensive rulemaking in 2019. Several dissenting Federal Reserve and FDIC board members also questioned whether the proposed rules are intended to require regional banks to adopt the more complex “single-point-of-entry” (or “SPOE”) resolution strategy used by U.S. GSIBs.
According to the agencies, the proposed changes seek to address risks posed by large regional banks (with at least $100 billion in total assets) and the challenges that the FDIC can face in executing an orderly resolution of troubled banks, including several risks and challenges highlighted by the recent failures of Silicon Valley Bank, Signature Bank and First Republic Bank.
The proposals include a new long-term debt requirement for regional banking organizations and significant changes to resolution planning requirements for mid-sized banks, as summarized below. Plans to issue proposals on these topics have been signaled for months in public speeches and testimony by agency leadership, but several aspects of the proposals would impose an unexpectedly high burden on mid-size and regional banks.
Additional detail regarding the proposed LTD and “clean holding company” requirements for regional banking organizations is available here, and additional detail regarding the proposals relating to resolution planning is available here.