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Banks Could Face Long-Term Debt Requirements

Joe Mont | November 2, 2015

Unveiling yet another effort to end taxpayer bailouts of large banks, the Board of Governors of the Federal Reserve has proposed an increase in the loss absorbing capacity of systemically important U.S. bank holding companies and the domestic operations of systemically important foreign banks. The proposed rule includes disclosure requirements and limits on the ability of the largest bank holding companies to issue short-term debt.

The total loss-absorbing capacity (TLAC) proposal requires covered institutions to maintain a minimum amount of long-term debt that could be converted into equity in the event of a failure. “The proposal, combined with our other work to improve the resolvability of systemic banking firms, would substantially reduce the risk to taxpayers and the threat to financial stability stemming from the failure of these firms,” Federal Reserve Chair Janet Yellen...

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