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U.S. Regional Banks May Face Tougher Regulatory Provisions
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With an aim to further bolster the banking industry’s resilience following three major bank failures earlier this year, regulators have proposed new rules for banks with at least $100 billion in total assets.
The Federal Deposit Insurance Corporation (“FDIC”), along with other federal regulators, aims to strengthen “resolution planning for insured depository institutions (IDIs).” New resolution planning guidance for living wills for large bank holding companies has been proposed too.
Apart from these, lenders will be required to issue adequate long-term debt to absorb losses in the event of a potential seizure. Regional banks, including PNC Financial Services (PNC - Free Report) , Citizens Financial Group (CFG - Free Report) , Zions Bancorporation (ZION - Free Report) and Fifth Third Bancorp (FITB - Free Report) , are among those that will come under new, stringent rules. This will bring these banks in line with the larger ones like JPMorgan (JPM - Free Report) , which already have their own set of requirements.
Martin Gruenberg, the FDIC chairman, noted that the regional banking crisis indicated that smaller mid-sized banks, too, need tougher rules, and requiring those to issue more debt will act as a cushion against potential losses. It is estimated that the FDIC incurred losses of about $30 billion following the seizures of Silicon Valley Bank, Signature Bank and First Republic Bank.
Per the FDIC, the proposal, if implemented, would see banks raise their long-term debt issuances by almost 25%. Gruenberg added that issuing such debt is likely to “marginally increase funding costs" and may lead to net interest margin contraction by nearly three basis points.
Banks, including PNC, CFG, ZION, FITB and JPM, are already struggling to keep funding costs down. This is putting pressure on their balance sheet and making it difficult to earn solid profits. Hence, these new proposals are expected to lead to higher funding costs.
The comments on all three proposals are due by Nov 30, 2023.
Notably, the issuance of long-term debt proposal will have “a three-year phase-in period and would also allow certain outstanding long-term debt to count toward the minimum requirements to provide banks with a reasonable period to transition to the required characteristics of eligible long-term debt instruments.”
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U.S. Regional Banks May Face Tougher Regulatory Provisions
With an aim to further bolster the banking industry’s resilience following three major bank failures earlier this year, regulators have proposed new rules for banks with at least $100 billion in total assets.
The Federal Deposit Insurance Corporation (“FDIC”), along with other federal regulators, aims to strengthen “resolution planning for insured depository institutions (IDIs).” New resolution planning guidance for living wills for large bank holding companies has been proposed too.
Apart from these, lenders will be required to issue adequate long-term debt to absorb losses in the event of a potential seizure. Regional banks, including PNC Financial Services (PNC - Free Report) , Citizens Financial Group (CFG - Free Report) , Zions Bancorporation (ZION - Free Report) and Fifth Third Bancorp (FITB - Free Report) , are among those that will come under new, stringent rules. This will bring these banks in line with the larger ones like JPMorgan (JPM - Free Report) , which already have their own set of requirements.
Martin Gruenberg, the FDIC chairman, noted that the regional banking crisis indicated that smaller mid-sized banks, too, need tougher rules, and requiring those to issue more debt will act as a cushion against potential losses. It is estimated that the FDIC incurred losses of about $30 billion following the seizures of Silicon Valley Bank, Signature Bank and First Republic Bank.
Per the FDIC, the proposal, if implemented, would see banks raise their long-term debt issuances by almost 25%. Gruenberg added that issuing such debt is likely to “marginally increase funding costs" and may lead to net interest margin contraction by nearly three basis points.
Banks, including PNC, CFG, ZION, FITB and JPM, are already struggling to keep funding costs down. This is putting pressure on their balance sheet and making it difficult to earn solid profits. Hence, these new proposals are expected to lead to higher funding costs.
The comments on all three proposals are due by Nov 30, 2023.
Notably, the issuance of long-term debt proposal will have “a three-year phase-in period and would also allow certain outstanding long-term debt to count toward the minimum requirements to provide banks with a reasonable period to transition to the required characteristics of eligible long-term debt instruments.”