Large regional banks would have to issue roughly $70 billion in fresh debt under a new rule proposed Tuesday by U.S. banking regulators, part of a broader effort to bolster the resilience of the sector after three lenders failed earlier this year, Reuters reported. The proposal — issued by the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve and the Office of the Comptroller of the Currency — would bring banks with over $100 billion in assets more in line with the largest Wall Street giants, which already have their own debt requirement. It follows a tumultuous spring for regional banks in which Silicon Valley Bank and two other lenders collapsed, forcing regulators to backstop deposits to stave off a broader panic. FDIC Chairman Martin Gruenberg argued that the crisis showed smaller banks need stricter rules, and that requiring them to issue more long-term debt would provide an added cushion for losses, reassure depositors, and encourage investors to closely scrutinize banks' operations. The proposal, which is subject to industry feedback, would see banks raise their long-term debt issuance by roughly 25%, or $70 billion, according to the FDIC. The agency said banks would have three years from the rule's adoption to meet the new standard. If finalized, lenders will be forced to issue debt in an environment where interest rates have rapidly risen, and as regulators are simultaneously pushing a separate, sweeping proposal that would also require lenders to significantly increase their capital.
