Blog: BPI offers feedback on large bank resolution requirements … – Financial Regulation News

Public policy, research, and advocacy group Bank Policy Institute (BPI) has provided the Federal Reserve and Federal Deposit Insurance Corporation (FDIC) with input regarding large bank resolution requirements.

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BPI responded to the Federal Reserve and FDIC request for comment regarding whether the benefits of requiring domestic regional banks to maintain an extra layer of loss-absorbing capacity on top of existing capital outweigh the costs when it comes to enhancing the resolvability of those banks.

“The idea for an extra layer of loss absorbency borrows from the resolution framework designed for the largest globally active banks, but it is an idea that is wholly ill-suited for large U.S. regional banks, which operate with entirely different business models and risk profiles,” BPI General Counsel John Court said. “It would impose substantial and immediate additional costs on these banks, lead to competitive imbalance, and provide only modest potential benefit.”

The BPI maintains any proposal focusing on issuing an extra layer of unsecured, long-term debt to absorb losses if the bank fails provides less stability and increases the potential for a downturn. Banks would have to pass the higher costs of issuing long-term debt under stress to borrowers, contributing to a worsening of the initial downturn.

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