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U.S. Banks Would Raise $70 Billion In Debt As A Result Of Proposed Regulations For Preventing Failures

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As part of a larger initiative to strengthen the sector’s resilience following the failure of three lenders earlier this year, U.S. banking regulators on Tuesday proposed a new regulation that would require large regional banks to issue about $70 billion in new debt.

Examine Bank Operations

The idea, put out by the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation (FDIC), would bring banks with assets of over $100 billion closer to the biggest Wall Street titans, which already have their own debt requirement.

Following a turbulent spring for regional banks, during which Silicon Valley Bank and two other institutions went under, regulators were forced to take action.

Martin Gruenberg, the chairman of the FDIC, stated that the crisis demonstrated the need for stronger regulations for smaller banks and that making them issue more long-term debt would increase the safety net for losses, comfort depositors, and motivate investors to carefully examine bank operations.

Convicting Case

US Bank

Source: CNBC’s

Depending on which figure is greatest, each bank’s debt need will be determined by its risk-weighted assets, total assets, or total leverage.

Regional banks that would be subject to the new, stricter regulations include PNC Financial Services Group Inc. (PNC.N), Fifth Third Bancorp. (FITB.O), and Citizens Financial Group Inc. (CFG.N). Industry organizations criticized the proposal right away.

Greg Baer, CEO of the Bank Policy Institute, which advocates for large banks, stated that “the agencies must consider the complete picture and give a thorough accounting of the complete costs and benefits” of these ideas. “There is a chance that these measures could weaken the institutions they intend to enhance if they are not carefully considered and calibrated.

According to the idea, lenders would have to submit more thorough plans, including explanations of how they may be split up and sold off in chunks or managed permanently as bridge banks by the FDIC. They would also have to guarantee that banks can swiftly provide regulators and potential buyers with vital information.

Due in part to difficulties in delivering thorough information to possible acquirers, the FDIC was unable to locate rapid buyers for several failed lenders, such as Silicon Valley Bank.

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