Final rule on large banks’ investments in unsecured debt instruments kicks in April 1

A final rule aimed at limiting the “interconnectedness” of large banking organizations approved by federal banking regulators is set to take effect April 1.

Published Wednesday in the Federal Register, the final rule revises the regulatory capital treatment for investments in covered debt instruments that applies to advanced approaches banking organizations. Approved by the Federal Reserve, Federal Deposit Insurance Corp. (FDIC), and Office of the Comptroller of the Currency (OCC), the final rule was described in regulators’ notice as “substantially consistent” with the April 2019 proposal, though regulators said they made some modifications in response to comments and to make some technical clarifications.

The final rule requires, among other things, deduction from a banking organization’s regulatory capital for certain investments in unsecured debt instruments issued by foreign or U.S. global systemically important banking organizations (GSIBs) for the purposes of meeting minimum total loss-absorbing capacity (TLAC) requirements.

Reg lookup: Regulatory Capital Treatment for Investments in Certain Unsecured Debt Instruments of Global Systemically Important U.S. Bank Holding Companies, Certain Intermediate Holding Companies, and Global Systemically Important Foreign Banking Organizations