At the beginning of April, United States bank regulators proposed a rule that would effectively discourage large banks from purchasing the total loss-absorbing capacity debt (“TLAC”) of fellow large banks. The proposal from the Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency would require the bank purchasing the TLAC to hold additional capital against that investment and require those banks to publicly report how much of that debt they have outstanding, thus heavily discouraging banks from holding large quantities of TLAC debt obtained by fellow banks.

Under rules established in 2008 following the financial crisis banks are required to issue TLAC debt, which was aimed at ensuring banks can quickly access more equity if pushed to bankruptcy. Which in turn lowers the odds that taxpayers would need to bail them out. The flaw there, regulators worry, is that if large banks like JPMorgan Chase, Goldman Sachs and Citigroup simply bought up each other’s debt, it could weaken that safeguard should a broad future crisis hit multiple global banks at once.

The world of banking is heavily regulated and continuously being updated and changed. If you need assistance in understanding new policies and regulations, contact the experienced attorneys at Goosmann Law in our Sioux City, Sioux Falls, and Omaha offices.

CONTACT US

Subscribe Our Blog

DISCLAIMER: The information in this blog post (“post”) is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. By visiting this website, blog, or post you understand that there is no attorney client relationship between you and the Goosmann Law Firm attorneys and website publisher. No information contained in this post should be construed as legal advice from Goosmann Law Firm, PLC, or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.