The Federal Reserve Board is seeking public comment on a proposed rule that looks to enhance the ability of regulators to resolve large banks in an orderly way should they fail.
With recent merger activity, along with organic growth, large banking organizations have increased in size. If they were to fail, resolving the firms without disruption to customers and counterparties could be complicated due to their large size. This new proposed rule would seek to remedy that with several new requirements and resources, including a long-term debt requirement, that could be used for an orderly resolution of these large banking organizations.
“As the banking system changes, policymakers must continuously evaluate whether resolution-related standards and prudential standards for large banks keep pace,” Fed Vice Chair for Supervision Michael Barr said. “That is why we welcome comment on an advance notice of proposed rulemaking on resolution-related standards, and are evaluating whether capital requirements for large banks, including global systemically important banks — as well as other elements of the prudential framework — should be updated.”
The advance notice of proposed rulemaking was developed by the Fed with the help of the Federal Deposit Insurance Corporation (FDIC). Comments will be accepted for 60 days after publication in the Federal Register.
Also, in related news, the Fed approved the application by U.S. Bancorp, based in Minneapolis, to acquire MUFG Union Bank of San Francisco. As a result, U.S. Bancorp has committed to providing the board and the FDIC with an interim update to its resolution plan reflecting the combined organization, and implementation plans related to heightened prudential standards.
In response to the Fed announcing its approval of the U.S. Bancorp-MUFG merger, U.S. Sen. Sherrod Brown (D-OH), chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, said he has long raised concerns about megabank mergers and consolidation.
“They increase risks to our financial system, decrease competition, and lead to branch closures, which can hurt consumers and communities,” Brown said. “I look forward to working with the Fed to address these concerns and to strengthen regulation to ensure that the banking system works for everyone.”