The Independent Community Bankers of America (ICBA) has expressed its support for a proposed rule that would mandate banks with assets worth $100 billion or more to maintain minimum levels of externally issued long-term debt. This rule has been proposed by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency.
A joint press release issued by these agencies clarified that under current regulations, U.S. global systemically important bank (GSIB) holding companies and intermediate holding companies of foreign GSIBs are subject to long-term debt (LTD) requirements. The proposal, announced in September, aims to extend these minimum LTD requirements to other large banking organizations (LBOs) and certain insured depository institutions (IDIs) associated with LBOs. If an IDI is a subsidiary of an LBO and holds at least $100 billion in assets or is affiliated with an IDI possessing at least $100 billion in assets, it would be required to issue LTD internally to a consolidating parent LBO. An IDI with at least $100 billion in assets without a holding company subject to the proposed rule would have the option to issue the LTD either internally or externally. The required LTD would equal the largest value among 6% of risk-weighted assets, 2.5% of total leverage exposure, and 3.5% of average total consolidated assets.
"Large banks over $100 billion should be required to maintain long-term debt with characteristics similar to those required for global systemically important banking organizations," stated ICBA President and CEO Rebeca Romero Rainey in a press release. "As ICBA has long said, applying stricter capital, debt and resolution standards on the largest banks will help address the nation’s too-big-to-fail problem while allowing community banks to continue meeting the needs of local customers and communities."
In a press release from ICBA, it was revealed that in its comments submitted to the agencies earlier this month in response to the proposal, ICBA said that under the proposed rule, capital markets would absorb the risk. This would help protect taxpayers and community banks when large banks fail. It also stated that the market pricing of the instruments would be useful in identifying weaknesses in large banks, which would encourage these institutions to maintain high-quality regulatory capital.
