The news: Proposals unveiled jointly by the Federal Deposit Insurance Corp. (FDIC), the Federal Reserve, and the Office of the Comptroller of the Currency (OCC) would add more oversight of midsize banks and require them to prepare better for potential failures.
The problem: During the regional banking crisis earlier this year, the FDIC paid out over $30 billion from the Deposit Insurance Fund to cover insured deposits—as well as uninsured deposits that it backstopped after invoking the systemic risk exception.
What’s changing: Generally speaking, the proposal takes measures that apply to global systemically important banks (GSIBs) down to the level of regional or midsize banks with at least $100 billion in assets, like PNC, Capital One, Truist, M&T, Fifth Third, Regions, and Northern Trust.
Here, we highlight the two most important measures:
Hypothetical resolution plans: The FDIC based its recommendations for “living wills” on its nail-biting experiences in winding down Silicon Valley Bank, Signature Bank, and First Republic Bank over successive weekends.
The FDIC passed this measure with a 3-2 vote.
Long-term debt requirements: Phased in over a three-year period, these would require banks with as little as $100 billion in assets to issue enough long-term debt to cover capital losses in times of severe stress.
This measure was unanimously passed by all five FDIC members.
Regulators will accept comments on these proposals through the end of November.
Our take: Instead of custom-tailoring regulation for regional and midsize lenders, the Fed and the FDIC are trying to fit them into the framework previously designed for the largest globally active banks. The agencies’ acknowledgment that the requirements will create “moderately higher funding costs” for this banking sector doesn’t take into account other pressures it’s also currently experiencing.