ABA urges agencies to reconsider proposed long-term debt requirement

Banking regulators should drop a proposal for a long-term debt requirement for banks with more than $100 billion and instead pursue options that give banks more flexibility to adopt requirements that better reflect their size and structure, the American Bankers Association said today in a letter to the Federal Reserve, FDIC and the Office of the Comptroller of the Currency.

Under the proposed rule, a covered bank would be required to have a minimum outstanding amount of eligible long-term debt that is at least 6% of the institution’s total risk-weighted assets, 2.5% of its total leverage exposure (if it is required to maintain a minimum supplementary leverage ratio) or 3.5% of its average total consolidated assets, whichever is greater. In its letter, ABA said the proposal strays from a 2018 law that requires banking regulations to be tailored according to an institution’s size, risk and complexity. The association suggested the agencies eliminate the internal long-term debt requirement and instead allow a covered entity the option to comply either with an external requirement at the holding company level or with an internal or external requirement at the institution level, but not require both.

ABA further suggested that banking regulators not impose a particular resolution strategy on banks but instead preserve the option to continue to develop existing resolution strategies and plans if a compliant long-term debt requirement can be issued without interfering with them. It recommended that agencies analyze the market effects of including both Category III and Category IV banks in the proposed rule. Also, it said that the agencies should acknowledge and consider the important distinctions among different types of deposits—insured and uninsured—and their importance to the banking system and economy, and should not broadly discourage the acceptance of uninsured deposits.