Potential new regulatory requirements to cushion the economic effects of certain large bank failures would not result in real benefits to the financial system or the public, ABA said today in a letter to Federal Reserve and FDIC. Both agencies announced last year they were exploring new requirements to address the financial stability risks posed by some large banking institutions (LBOs) that were not global systemically important banking organizations. LBOs in this instance are defined as banking organizations in Categories II and III under the Federal Reserve’s tailoring rule, which generally exceed a threshold of $250 billion in total consolidated assets.
In its letter, ABA noted that banks have made great progress in assuring financial stability since the financial crisis of 2007-2008. “In light of that progress and the strong capital and liquidity positions that non-G-SIB LBOs have achieved and maintained since the financial crisis, ABA is concerned that adding additional resolution measures, including an extra layer of loss-absorbing capacity (which is akin to an extra layer of capital), will not result in meaningful, cost-effective benefits to the financial system or the public,” the association said.
It is also unclear how the possible additional measures would improve on the well-developed resolution plans that the LBOs developed in close coordination with—and with the approval of—the Fed and FDIC, ABA said. Additionally, the agencies have long recognized that the LBOs in question do not present systemic risk, and the regulatory record indicates the agencies have adopted all the needed tools to ensure the safety, soundness, and resolvability of banks as required under the Dodd-Frank Act. “The agencies have implemented a tailoring framework finalized in 2019 that addresses growth if certain asset thresholds are crossed, and the agencies should let that framework work as intended,” ABA said.
