US regulators move to shore up regional banks stability

investmentweek.co.uk:

The proposal will require large banks with total assets of $100bn or more to maintain a layer of long-term debt.

The Federal Deposit Insurance Corporation, Federal Reserve and Office of Comptroller of the Currency have all co-signed new proposals which will require large banks with total assets of $100bn or more to maintain a layer of long-term debt.

According to the FDIC, by requiring each bank to maintain a minimum amount of long-term debt to absorb losses the proposal would «increase the options available to resolve such banks in case of failure».

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It said: «By reducing the risk that uninsured depositors would face losses, long-term debt can reduce the speed and severity of bank runs, and limit the risk of contagion when a bank is under stress».

The majority of these concerns and rush for reform stem from the US regional banking crisis earlier this year, when the collapse of Silicon Valley Bank due to a run-on deposits pushed similar institutions to receive mass withdrawal deposit, creating fears of a 2008 contagion risk.

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The FDIC said the latest proposal was designed to address the «risks specific to large banks that are not global systemically important banks and would not materially change the existing requirements already in place for GSIBs».

It said it would also prohibit large firms from engaging in «certain activities» which could «complicate their resolution», and aimed to «disincentivise these banks from holding long-term debt issued by other banks to reduce interconnectedness and contagion in the banking system».

If approved, the new rules would take approximately