People outside a banking group have a stake in how its failure is handled. The Federal Reserve's rule published January 24, 2017 requires covered U.S. global systemically important bank holding companies to maintain loss-absorbing instruments, including unsecured long-term debt. It turns a public-interest question about who carries financial risk into requirements for particular corporate balance sheets. [2017-00431][2015-29740]

The domestic minimum is the greater of 18 percent of risk-weighted assets and 7.5 percent of total leverage exposure. Those are different measures, not percentages to add together. Separate buffers can restrict capital distributions and discretionary bonuses when breached, linking the availability of payouts to resources retained within the covered company. [2017-00431][2015-29740]

The November 2015 proposal helps show what changed. It contemplated a 16 percent risk-weighted requirement in January 2019, rising to 18 percent in January 2022. The final rule removed that later phase-in and scheduled general compliance for January 2019, while retaining transition provisions for firms that become covered later. That is a change in preparation time, not a report of completed protection. [2017-00431][2015-29740]

For workers, customers and taxpayers, the useful distinction is between a mechanism for absorbing losses and evidence that a future failure will be contained. The published legal effective date was March 27, 2017, separate from compliance. These two documents record one Federal Reserve proceeding; they cannot establish that losses have already shifted away from the wider public or that a bailout will never occur. [2017-00431][2015-29740]

Source documents

  1. Total Loss-Absorbing Capacity, Long-Term Debt, and Clean Holding Company Requirements for Systemically Important U.S. Bank Holding Companies and Intermediate Holding Companies of Systemically Important Foreign Banking Organizationshttps://www.govinfo.gov/content/pkg/FR-2017-01-24/html/2017-00431.htm
  2. Total Loss-Absorbing Capacity, Long-Term Debt, and Clean Holding Company Requirements for Systemically Important U.S. Bank Holding Companies and Intermediate Holding Companies of Systemically Important Foreign Banking Organizations; Regulatory Capital Deduction for Investments in Certain Unsecured Debt of Systemically Important U.S. Bank Holding Companieshttps://www.govinfo.gov/content/pkg/FR-2015-11-30/html/2015-29740.htm