Agencies Propose Rule to Limit Impact of Large Bank Failures — 2019-04-02

The federal banking agencies on Tuesday proposed a rule to limit the interconnectedness of large banking organizations and reduce the impact from failure of the largest banking organizations. The proposal would complement other measures that the banking agencies have taken to limit interconnectedness among large banking organizations. Global systemically important bank holding companies, or GSIBs, are the largest and most complex banking organizations and are required to issue debt with certain features under the Board's "total loss-absorbing capacity," or TLAC, rule. That debt would be used to recapitalize the holding company during bankruptcy or resolution if it were to fail. To discourage GSIBs and "advanced approaches" banking organizations—generally, firms that have $250 billion or more in total consolidated assets or $10 billion or more in on-balance sheet foreign exposure—from purchasing large amounts of TLAC debt, the proposal would require such banking organizations to hold additional capital against substantial holdings of TLAC debt.