Systemic Risk Council Urges Federal Reserve and FDIC Not to Relax Resolution-Planning Requirements for Large US Regional Banks

The Systemic Risk Council has today strongly urged the Federal Reserve Board and the Federal Deposit Insurance Corporation not to proceed with their proposals to relax resolution-planning requirements for the large regional US banks that are not globally systemic. Over recent months, the Fed and the FDIC have published proposals that, taken together, would relax both resolution-planning and capital and liquidity requirements even though it is currently unclear that all of the affected banking businesses could be resolved in an orderly way. If ever a large regional bank failed, that uncertainty creates the possibility of the authorities resorting to a taxpayer bailout in order to contain disruption to the regional and national economy and losses to the Deposit Insurance Fund. The SRC is recommending that the banking authorities should seriously consider introducing requirements for regional banks to issue bonds that could be bailed-in wherever there is a material risk that the more traditional (“purchase and assumption”) resolution techniques could not always be applied effectively. Commenting on the authorities’ package of proposals, SRC Chair Paul Tucker said: “The priority right now should be stepping up preparations to ensure that all large regional banks can be resolved in an orderly way without taxpayer solvency support, not relaxing planning in the hope that things will work out ok.”

Read the full letter here