FDIC to Introduce New Banking Resolution Rules for Long-Term Debt

The Federal Deposit Insurance Corporation (FDIC), a prominent U.S. bank regulator, is poised to propose comprehensive rules aimed at transforming the preparedness of large regional banks for their potential failures. The proposed rules are scheduled for announcement on August 29, as reported by a notice released late on Tuesday.

The regulatory landscape in the United States has been undergoing changes to fortify the oversight of the banking sector, particularly in the wake of a series of notable bank failures, including three of the largest in U.S. history that occurred this year.

According to FDIC Chair Martin Gruenberg's recent address, the forthcoming proposal is anticipated to mandate banks with assets totaling $100 billion or more to issue long-term debt. This debt issuance would serve as a buffer to absorb potential bank losses before involving depositors and drawing from the FDIC's deposit insurance fund.

Additionally, the proposal will encompass requirements for the creation of bank recovery and resolution plans, commonly referred to as "living wills." These plans will be required to provide the FDIC with expanded options when managing the receivership of a failed bank. This enhancement includes the identification of specific segments of the bank that could potentially be sold off as separate entities.

The introduction of these new rules underscores regulators' commitment to enhancing the resilience and stability of the U.S. banking system. By enforcing greater requirements for long-term debt issuance and bolstering recovery and resolution plans, the FDIC aims to create a more robust framework that can better manage and mitigate risks associated with potential bank failures.

As the U.S. banking landscape continues to evolve and adapt to new challenges, regulatory authorities play a crucial role in shaping the industry's practices to ensure the safety and soundness of financial institutions, as well as to safeguard the interests of depositors and the broader economy. The FDIC's proposed rules mark a significant step towards achieving these goals and promoting a more secure and resilient banking sector.