On August 29, 2023, the federal banking agencies jointly proposed rules that would significantly expand the scope of banking organizations required to issue and maintain a minimum amount of qualifying long-term debt (“LTD”) to include depository institution holding companies (i.e., bank holding companies, and savings and loan holding companies) that are subject to the Federal Reserve’s Category II, III or IV enhanced prudential standards (including Category II, III and IV U.S. intermediate holding companies of foreign banking organizations), as well as insured depository institutions (“IDIs”) that have at least $100 billion in total assets or are affiliated with IDIs that have $100 billion in total assets. Under the proposal, only debt instruments with certain loss-absorbing features (related to, for example, subordination, term, and acceleration) would qualify as eligible LTD.
The proposed rules would also impose restrictions referred to as “clean holding company requirements” on other liabilities that covered entities may have outstanding, as well as amend the Federal Reserve’s existing “total loss absorbing capacity” (“TLAC”) rule applicable to global systemically important banking organizations (“GSIBs”) to improve harmony between provisions within the TLAC rule and address items that have been identified through the administration of the existing TLAC rule.
The final rules would be subject to a proposed three-year transition period. The following memo summarizes key features of the proposed rules.
To read our overview of the federal banking agencies proposed rules and guidance, please click here. Additional detail regarding the proposals relating to resolution planning is available here.