A proposal by top U.S. banking regulators to boost the minimum denomination of long-term bonds issued by lenders under new debt requirements would create impediments for smaller investors and increase costs for regional banks, a trade group representing investment managers said, Bloomberg News reported. The Federal Deposit Insurance Corp. and the Federal Reserve in August unveiled proposals to increase oversight of midsize lenders in response to the bank turmoil that roiled the industry earlier this year. As part of the proposed rules, banks with as little as $100 billion in assets would be required to issue enough long-term debt to absorb capital losses in times of severe stress, compared with the current $250 billion cutoff. Regulators have indicated they want this new long-term debt to be held by sophisticated institutional investors who would be better able to stomach losses in the event of a bank failure, as opposed to individual investors. One way they hope to limit retail participation is by raising the minimum bond denomination requirements on this debt to $400,000 from the current industry standard of $2,000. But the higher threshold would also create problems for investors managing smaller mutual funds and exchange-traded funds, according to the Credit Roundtable.
