FDIC Board at meeting to take initial actions in response to bank failures with proposals on long-term debt, resolution plans

Proposed rules on long-term debt requirements for certain banks and holding companies and more effective resolution plans, among other regulatory actions, are on the agenda for a meeting next week of the board of the federal bank deposit insurance agency, the agency said late Tuesday.

The meeting of the Federal Deposit Insurance Corp. (FDIC) Board is set for Aug. 29 at 10 a.m.; it will be open to the public only via webcast, the agency said.

The board’s actions are in response to the failure earlier this year of three, large regional banks (Silicon Valley Bank (SVB) of Santa Clara, Calif., Signature Bank of New York, N.Y., (both in March), and First Republic Bank of San Francisco (in early May).

FDIC Board Chairman Martin Gruenberg announced earlier this month (Aug. 14) that the proposals were imminent.

Specifically, the board is scheduled to consider:

  • Notice of Proposed Rulemaking (NPR) on long-term debt requirements for large bank holding companies, certain intermediate holding companies of foreign banking organizations, and large insured depository institutions.
  • Proposed requirements of resolution plans for insured depository institutions with $100 billion or more in total assets; informational filings required for insured depository institutions with at least $50 billion, but less than $100 billion in total assets.
  • Publication of proposed guidance for Dodd-Frank Act resolution plan submissions of triennial full filers.
  • Conditions to certain receivership delegations of authority and procedures.
  • Board approval of midsized and large failed bank sales.

About the long-term debt requirement, Gruenberg on Aug. 14 asserted that it would bolster financial stability in several ways.

“It absorbs losses before the depositor class – the FDIC and uninsured depositors – take losses. This lowers the incentive for uninsured depositors to run. Even if the institution fails, the buffer of long-term debt reduces cost to the Deposit Insurance Fund, and makes it more likely that a closing weekend sale could comply with the statutory least-cost test and avoid the need for a systemic risk exception.

“Further, it creates additional options in resolution, such as recapitalizing the failed bank under new ownership or breaking up the bank and selling portions of it to different acquirers, as an alternative to a merger with another large institution,” he said.

About resolution plans, Gruenberg said the proposal is intended to set clear expectations for the banks with respect to the content of the plans.

The proposal, he said earlier this month, would be a “comprehensive restatement of the existing rules.”

He indicated the proposal will not directly affect institutions with assets of less than $100 billion (the current threshold). However, he indicated that institutions under $100 billion in assets can also present resolution challenges.

“While we do not propose requiring full plans for these banks under the strengthened rule, we will propose requiring certain information from banks over $50 billion to inform our resolution planning,” he said.

FDIC: Sunshine Act meeting (Aug. 29)