Fed checking out whether it has proper resolution tools for big bank failures

The Federal Reserve today revealed it is looking for public talk about potentially preparing brand-new requirements for big banks to minimize the financial results must the banks stop working. The Fed authorized an advance notification of proposed rulemaking requesting talk about possible brand-new requirements, consisting of a long-lasting financial obligation requirement. The proposed rulemaking would use to big banking companies in Categories II and III, which usually go beyond a limit of $250 billion in overall combined properties, according to the notification, which was prepared collectively with the FDIC.

In an accompanying memo, the Fed stated that big banks “have experienced noteworthy increases in size” that “may narrow resolution options in the event of their material failure or distress.” The firm is looking for talk about whether specific resolvability-related requirements, such as a long-lasting financial obligation requirement, would attend to monetary stability dangers postured by a big bank’s failure. It likewise looks for talk about the expenses related to such a proposition, acknowledging that a long-lasting financial obligation requirement “could impact the cost and availability of credit,” and on whether extra resolution-related requirements, such as assistance on separability, would work for boosting optionality in the resolvability of big banks. The notification came the exact same day the Fed authorized U.S. Bancorp’s acquisition of MUFG Union Bank.

Fed Governor Michelle Bowman launched an accompanying declaration in which she revealed assistance for checking out the concern however warned that regulative modification might produce unexpected repercussions, pointing particularly to the prospective results on the expense and schedule of credit. “I will evaluate future proposals on their merits,” she stated.


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