ICBA announces support for proposed large-bank debt rules

ICBA announced its 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.

Background: Under the proposal, the 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 Comments: In a comment letter, ICBA said:

• The proposal would help protect U.S. taxpayers and community banks from the failures of the too-big-to-fail megabanks by allowing the capital markets to absorb the risk.

• The market pricing of these instruments could help identify potential safety and soundness stresses within these institutions, incentivizing large bank management teams to maintain high-quality regulatory capital.

• The proposal increases the likelihood that community banks could successfully bid on the assets or liabilities of a failed large bank, because the proposal offers management teams more time to thoroughly evaluate risks and opportunities.

ICBA Announcement: “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,” ICBA President and CEO Rebeca Romero Rainey said in a national news release.

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