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US regulators unveil new bank rules to improve financial stability

WASHINGTON – US regulators have announced plans for new banking rules to mitigate against future failures, as they move to prevent a repeat of the rapid banking collapses seen earlier in 2023.

A bank run on the mid-sized Californian lender Silicon Valley Bank (SVB) in March over interest rate concerns quickly spiralled into one of the most acute banking crises in years.

It caused the collapse of a number of regional banks and the merger under pressure of Swiss banking giant Credit Suisse with regional rival UBS.

In response, the US Federal Reserve’s vice-chairman for supervision, Mr Michael Barr, announced a review into the collapse of SVB and other banks, which concluded that both regulators and the bank’s management had made mistakes.

On Tuesday, US regulators including the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) published a series of statements requesting comment on two new measures aimed at shoring up banks to better weather future crises.

One proposal seeks to ensure mid-sized banks with more than US$100 billion (S$135 billion) in assets hold more long-term debt to improve financial stability and make it easier to resolve future failures, limiting the risk of contagion when a bank is under stress.

“By requiring each large bank to maintain a minimum amount of long-term debt to absorb losses, the proposal would increase the options available to resolve such banks in case of failure,” the regulators said.

The other proposal would mandate that banks with more than US$250 billion in assets develop so-called “living wills”, which are strategies for “rapid and orderly resolution under bankruptcy in the event of material financial distress or failure”.

Alongside the two proposals, two Fed governors also voiced their opinions on the changes being requested.

Governor Christopher Waller said he backed putting out the proposal on long-term debt but added that he had “concerns about its calibration”. He did not comment on the second proposal.

And governor Michelle Bowman took a more critical view, supporting the publication of a request for comment on the long-term debt proposal – “with reservation” – while opposing the second proposal.

Comments on the proposed rules are due by Nov 30, regulators said. AFP

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