Regulators extend comment period on long-term debt proposal

Bloomberg News

WASHINGTON — Federal regulators are extending by about six weeks the comment period for a proposed rule that would impose long-term debt requirements on more large banks.

The comment period originally was set to end on Nov. 30; the new deadline is Jan. 16. 

"The agencies extended the comment period to allow interested parties more time to analyze the issues and prepare their comments," the Federal Reserve Board, Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. said in a joint release Wednesday.

The extension comes as the agencies take increasing heat from the industry and its congressional allies to pare down a slate of regulations developed in response to this year's banking crisis. Regulators recently extended the comment period on a joint proposal to amend capital requirements for large banks and sought to gather more information about the potential impact of the changes.

Banks and other interested parties will now have until Jan. 16 to weigh in on the so-called Basel III endgame package and the long-term debt requirement proposed by the three agencies. Each proposal initially had been given a 120-day comment period that was set to end Nov. 30 before the extensions.

The long-term debt plan was issued in August. Regulators say an additional cushion of subordinated debt would improve resolutions of firms with assets of $100 billion or more by requiring them to hold minimum eligible outstanding long-term debt equal to the greater of 6% of their risk-weighted assets, 2.5% of total leverage exposure or 3.5% of average total consolidated assets. Banks must comply within three years of the final rule's enactment, during which time firms will gradually need to ramp up compliance.

Currently, only the largest banks — global systemically important banks, or GSIBs — are required to maintain long-term debt as part of their total loss absorbing capacity — TLAC — requirement. But regulators say failures earlier this year demonstrated that even banks down to $100 billion of assets can pose systemic risks.

The agencies are seeking to address the lingering systemic vulnerabilities highlighted by the failures of Silicon Valley Bank, Signature Bank and First Republic Bank in the spring. FDIC Chairman Gruenberg has said the long-term debt would not only reduce the incentive for depositors to run, but also cushion the blow to uninsured depositors in the event of a failure, reduce the resolution costs sustained by the Deposit Insurance Fund and offer the agency additional resolution options other than merging a failed firm with another large institution.

While the long-term debt plan was initially met with a more muted response compared to other regulatory proposals like capital hikes, trade groups representing the largest banks have nonetheless balked at the requirement.

Some officials at the regulatory agencies also expressed concerns even as they ultimately approved proposing the measure for comment. Fed Govs. Michelle Bowman and Christopher Waller previously raised issues with requiring larger banks to hold long-term debt, saying the plan could be too onerous for certain firms.