Notice of Proposed Rulemaking – Long Term Debt Requirements for Large Bank Holding Companies, Certain Intermediate Holding Companies of Foreign Banking Organizations, and Large Insured Depository Institutions (Docket ID OCC-2023-0011 and RIN 1557-AF21 [OCC], Docket No. R-1815 and RIN 7100-AG66 [Board], and RIN 3064-AF86 [FDIC])
Ladies and Gentlemen:
The American Bankers Association (ABA) appreciates the opportunity to comment on the Notice of Proposed Rulemaking (Proposed Rule or Proposal) issued by the Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (Board), and the Federal Deposit Insurance Corporation (FDIC, and together with the Board and OCC, the Agencies) requiring large banks with total assets of $100 billion or more (LBOs) to maintain a minimum amount of loss-absorbing long-term debt (LTD). The Proposed Rule follows an advanced notice of proposed rulemaking (ANPR) issued in October 2022 that examined possible changes, including a long-term debt requirement, to promote orderly resolutions for LBOs.
ABA previously acknowledged the importance of effective resolution strategies to maintain financial stability and minimize the cost of bank failures in response to the ANPR, but expressed concerns that increased resolution measures will not result in cost-effective benefits to the financial system. In a similar vein, ABA is concerned that the Proposed Rule strays from expressed Congressional intent that regulations be tailored according to the institutions' size, risk, and complexity. Federal Reserve Board Chair Jerome Powell testified before Congress that "resolution planning requirements should also be tailored to the size and complexity of the firm...Smaller and less complex firms likely do not need the same frequency of, and detail in, their living wills..." More recently, he noted in response to a question regarding a potential LTD requirement for Category II through IV banking organizations, that, "[w]e believe strongly and always have in tailoring to address the different size and risk characteristics of financial institutions and certainly nothing like that for the regionals. They won't have anything like what the very large, most systemically important banks have in terms of overall regulation . . . We're required by the law now and we're doing this [tailoring]. Dodd-Frank actually required us, suggested that we should tailor, and then S. 2155 required it. And anything that we do will reflect appropriate tailoring."
ABA notes that Agencies already implemented a tailoring framework in 2019 that addresses asset growth of LBOs if certain thresholds are crossed and their statutory obligation to tailor regulation to the relevant risks. Covered entities should therefore have reduced calibration requirements relative to the full "capital refill standards" applied to G-SIBs (Global Systemically Important Banks) under the total loss-absorbing capacity (TLAC) rule.
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