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Proposed Changes to Long-Term Debt Requirements Would Impair Market Liquidity
Rule intended to address resolvability of some banks would unnecessarily distort existing market for long-term debt, Forum says
Washington, D.C. – Agencies’ long-term debt (LTD) proposal would severely distort the existing LTD market, the Financial Services Forum said Tuesday, while supporting the proposal’s exclusion of its member institutions’ bank subsidiaries for certain requirements given the significant progress to their resiliency and resolvability.
The Forum responded to a proposal from the Office of the Comptroller of the Currency, the Federal Reserve Board, and the Federal Deposit Insurance Corporation that would newly require certain banks and bank holding companies to issue minimum amounts of long-term debt. The proposal would also revise certain LTD requirements to which Forum members are already subject at the holding company level.
The Forum’s letter offered several key observations and recommendations regarding the proposal to mitigate LTD market distortions. Specifically, the Forum urged regulators not to impose any minimum denomination requirement on LTD securities, as it would result in a less liquid, less diverse and more concentrated investor base. Additionally, the Forum cautioned against extending the LTD haircut requirement to minimum Total Loss-Absorbing Capacity (TLAC) requirements. By applying an additional haircut to TLAC requirements, the Federal Reserve would essentially require some U.S. GSIBs to raise additional capital.
The Forum supported the proposal’s position not to extend internal LTD requirements to bank subsidiaries of U.S. GSIBs.
“The proposal’s treatment appropriately recognizes the steps our member institutions have taken since the global financial crisis of 2008 to enhance their resilience and resolvability, obviating the need for a separate internal LTD requirement for their bank subsidiaries,” Forum President and CEO Kevin Fromer said.
The Forum’s full comments can be found here.
The Financial Services Forum is an economic policy and advocacy organization whose members are the chief executive officers of the eight largest and most diversified financial institutions headquartered in the United States. Forum member institutions are a leading source of lending and investment in the United States and serve millions of consumers, businesses, investors, and communities throughout the country. The Forum promotes policies that support savings and investment, financial inclusion, deep and liquid capital markets, a competitive global marketplace, and a sound financial system.
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