Opening Statement on the Long-Term Debt and Total Loss-Absorbing Capacity Proposal and the Final Rule for Margin and Capital Requirements for Uncleared Swaps by Chair Janet L. Yellen
The first item before the Board today is a proposed rule that would increase the loss absorbing capacity of systemically important U.S. bank holding companies and the U.S. operations of systemically important foreign banks. Importantly, the core of the proposal would require that these banking firms maintain at all times a minimum amount of long-term debt that could be converted into equity in resolution. 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. Accordingly, the proposal is another important step in addressing the "too big to fail" problem.
The second item before us today is a final rule that would reduce the risks that derivatives pose to financial stability by requiring bank swap dealers to collect and post margin on most of their swaps that are not centrally cleared. The final rule would set the minimum margin requirements for uncleared swaps higher than those for cleared swaps, providing market participants with an incentive to shift derivatives activity to central clearinghouses, enhancing market resilience and transparency. The final rule would also provide greater assurance that the default of a major participant in the over-the-counter derivatives market would not impair the viability of other participants.
Let me now turn to Governor Tarullo.