U.S. regulators will soon propose requiring banks with as little as $100 billion in assets to issue enough long-term debt to cover capital losses if they ever failed, Bloomberg News reported. The Federal Deposit Insurance Corp., the Federal Reserve and the Office of the Comptroller of the Currency are working on the plan as part of the federal government's response to this year’s failures of midsize lenders, according to FDIC Chairman Martin Gruenberg. The move could lead to more options for bank resolutions and reduces incentives for uninsured depositors to yank their cash, he said. “Such a long-term debt requirement bolsters financial stability in several ways,” Gruenberg said in remarks for an event at the Washington-based Brookings Institution. “It absorbs losses before the depositor class — the FDIC and uninsured depositors — take losses.” The issue of who should shoulder costs for bank failures became a political lightning rod earlier this year after the U.S. made the extraordinary decision to cover all deposits at Silicon Valley Bank and Signature Bank — including those that were unsecured. The move cost the government’s bedrock Deposit Insurance Fund, which is typically used to cover only as much as $250,000 in an account, billions of dollars.
