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Bookending post-crisis rules, Fed mandates long-term debt holdings

Joe Mont | December 15, 2016

Finalizing one of its last remaining post-financial crisis efforts to improve bank resiliency and avoid tax-payer funded bailouts, the Federal Reserve has approved new capitalization requirements for the largest domestic and foreign banks operating in the United States.

These institutions will be required to meet a new long-term debt mandate and a new “total loss-absorbing capacity” (TLAC) requirement. The final rule applies to domestic firms identified as global systemically important banks and to the U.S. operations of foreign GSIBs.

To reduce the systemic impact of the failure of a GSIB, a bankruptcy or statutory orderly resolution process imposes the losses of a failed GSIB on investors rather than taxpayers as the critical operations of the firm continue to function. Requiring a GSIB to maintain sufficient amounts of long-term debt, which can be converted to equity during...

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