ICBA Supports Proposed Long-Term Debt Requirements for Large Banks

Washington, D.C. (Jan. 4, 2024)—The Independent Community Bankers of America (ICBA) 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.

“Large banks over $100 billion should be required to maintain long-term debt with characteristics similar to those required for global systemically important banking organizations,” ICBA President and CEO Rebeca Romero Rainey said today. “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.”

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. Regulators could convert the long-term debt liabilities into common equity tier 1 capital to unwind failing institutions without systemic disruptions.

In a comment letter to federal banking regulators, 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.

The debt proposal aligns with ICBA’s support early last year for a previous agency proposal to enhance long-term debt standards for large institutions to reduce the chances that the failure of any of these institutions would require extraordinary government intervention.

Read ICBA’s comment letter.

About ICBA
The Independent Community Bankers of America® has one mission: to create and promote an environment where community banks flourish. We power the potential of the nation’s community banks through effective advocacy, education, and innovation.

As local and trusted sources of credit, America’s community banks leverage their relationship-based business model and innovative offerings to channel deposits into the neighborhoods they serve, creating jobs, fostering economic prosperity, and fueling their customers’ financial goals and dreams. For more information, visit ICBA’s website at icba.org.

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