08/14/2023 – 4:47 pm
The president of the Federal Deposit Insurance Corporation (FDIC), Martin J. Gruenberg, informed this Monday, 14, that the agency intends to propose the imposition of long-term debt issuance requirements for banks with more than US$ 100 billion in active.
The measure is part of a broader regulatory package proposed by American regulators in response to the banking turmoil that culminated in the bankruptcy of at least three institutions in the first half of this year, including the Silicon Valley Bank (SVB).
Currently, the strictest rules apply to the largest banks, generally with a portfolio of more than $700 billion under management. These long-term debts act as a kind of capital cushion, which can be used in times of uncertainty.
According to Gruenberg, the expectation is that the new rules determine that the banks in question issue debt at a sufficient level to allow recapitalization. “While many regional banks have some outstanding long-term debt, the new proposal will likely require the issuance of new debt,” he said, speaking at the Brookings Institute.
The instrument helps mitigate vulnerabilities in the financial system by absorbing any losses before depositors do, according to Gruenberg. The director also pointed out that the regulators are considering expanding the requirements for incorporating unrealized losses in capital calculations.
The authorities are also evaluating the possibility of tightening the rules for banks to report the share of uninsured deposits under their management. “For example, FDIC examiner instructions could set a specific threshold for concentrations of uninsured deposits, which would require examiners to devote supervisory attention to the concentration,” he reports.
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