In an effort to bolster the oversight of midsize banks, U.S. officials have revealed a proposal aimed at enhancing the preparedness of these financial institutions for potential failures. Announced in response to the banking turmoil experienced this year, the strategy does not indicate new stresses in the sector, but is designed to assure that lenders can be quickly and smoothly dissolved following any collapse. Read More
The Federal Deposit Insurance Corp. (FDIC) is rumored to be proposing that banks with as little as $100 billion in assets should issue sufficient long-term debt to cover capital losses during instances of severe stress. In addition, lenders would need to bolster their hypothetical resolution plans, ensuring that they could be efficiently dismantled should the need arise.
The swift failures of Silicon Valley Bank and Signature Bank earlier this year highlighted challenges in the oversight of midsize, or regional, banks. These banks are proposed to now face similar scrutiny as their larger Wall Street counterparts.
Following the turmoil in March, U.S. regulators have introduced a series of plans to increase scrutiny. The FDIC is marching at the forefront of these changes, dealing with contentious issues such as who should shoulder the costs for bank failures.
The new long-term debt requirements being proposed are set to be phased in over three years, according to the FDIC. The agency has also made assertions that the new demands will not result in additional total loss-absorbing capacity requirements, or TLAC.