Gruenberg: Orderly resolutions without systemic risk exception needed

FDIC Chairman Martin Gruenberg said there is a need for meaningful action to improve the likelihood of orderly resolutions of large regional banks without the expectation of invoking the systemic risk exception.

Details: Speaking in Germany, Gruenberg said the FDIC and other financial regulatory agencies are taking steps toward that goal, including via a long-term-debt requirement for large regional banks.

Background: Under the proposal, newly defined category II, III, and IV large banking organizations would join category I systemically important financial institutions in holding sufficient levels of long-term debt issued to third parties, which regulators could use to resolve large institutions in the event of insolvency.

ICBA View: ICBA this year expressed support for an interagency proposal to require banks with $100 billion or more in assets to maintain minimum levels of externally issued long-term debt. In a comment letter, ICBA said the proposal would help protect U.S. taxpayers from the failures of too-big-to-fail banks and increase the likelihood that community banks could successfully bid on the assets or liabilities of a failed large bank.

Ongoing ICBA Advocacy: The debt proposal aligns with ICBA’s support in January 2023 for a separate FDIC and Federal Reserve Board proposal to enhance long-term debt standards for large institutions to reduce the impact of failure.