US banking watchdogs will next week propose requiring that banks with as little as $100 billion in assets issue enough long-term debt to cover capital losses if they ever failed.
(Bloomberg) — US banking watchdogs will next week propose requiring that banks with as little as $100 billion in assets issue enough long-term debt to cover capital losses if they ever failed.
The plans to be released by the Federal Deposit Insurance Corp. on Aug. 29 are the latest response by Washington officials to the failure of three regional banks earlier this year. The FDIC said it will also unveil a plan to make lenders of that size bolster their hypothetical wind down plans.
The issue of who should shoulder costs for bank failures became contentious earlier this year after the US invoked a so-called systemic-risk exception to let the FDIC cover all deposits at Silicon Valley Bank and Signature Bank — including those that were unsecured. The move cost the government’s bedrock Deposit Insurance Fund, which is typically used to cover as much as $250,000 in an account, billions of dollars.
A buffer of long-term debt would help protect the fund by avoiding the need for a system-risk exception, FDIC Chairman Martin Gruenberg said on Aug. 14.
Gruenberg also recently said that improving the firms’ resolution plans, which are known as living wills, could reduce reliance on the FDIC to broker a sale if they ever fail. He has said the plan would require banks to identify parts that could be sold separately, letting a collapsed firm possibly tap into a broader range of potential buyers.
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