On Monday, October 24, the Federal Reserve Board (the “FRB”) and the Federal Deposit Insurance Corporation (the “FDIC”) published an advance notice of proposed rulemaking (“ANPR”) seeking comment on enhancements to the FDIC’s ability to resolve large banking organizations (“LBOs”) that are not global systemically important banks (“GSIBs”).
The Agencies released the ANPR concurrently with the FRB and OCC’s approvals of U.S. Bancorp’s (“USB’s”) application to acquire MUFG Union Bank, which also addressed resolution-related issues. The ANPR specifically identifies increased merger activity of LBOs as a rationale for considering the potential regulatory changes.
The ANPR solicits public comment regarding potential changes to the resolution-related standards applicable to LBOs, including whether to apply tailored versions of certain requirements currently applicable only to GSIBs such as loss-absorbing capacity requirements. The Agencies express concern that an increase in the size of LBOs and the amount of uninsured deposits at LBOs may limit resolution options in the event of a failure of an LBO. In particular, the ANPR seeks comment on whether an extra layer of long-term debt could improve optionality for the orderly resolution of an LBO.
In this alert memorandum, we discuss the policy debate leading to the ANPR, provide an overview of the ANPR and merger approvals and make a number of observations on this development.
Comments on the ANPR are due on or before December 23, 2022.
Please click here to read the full alert memorandum.