Big regional banks might face new rules for dealing with crisis

September 19, 2022

A group of President Biden-appointed bank regulators are considering new rules to require large regional banks to add to financial cushions that could be called on in times of crisis.

The steps under consideration include requirements that the regional firms raise long-term debt that can help absorb losses in case of their own insolvency, according to three people familiar with the matter, extending a slimmed-down version of requirements that at present apply only to the largest U.S. megabanks.

The most likely path for achieving these new requirements is through a formal rule-making process led by the Federal Reserve, the prospects for which banks and their trade groups are already beginning to fight on the grounds that the measure is unneeded and that their costs outweigh any benefits.

Michael Barr, the Fed’s new point man on financial regulation, signaled in a Sept. 7 speech that he is eyeing large regional banks “as they grow and as their significance in the financial system increases.” In his first public comments since taking office in July, he said that he would work with other banking regulators to boost regional banks’ so-called living wills, or plans for lenders to wind themselves down without a government bailout.

Bankers and their trade groups say extending long-term debt rules to regional firms is unwarranted, forcing banks that typically fund their operations through deposits to instead issue public debt that would ultimately increase costs for consumers and business borrowers.