October 14, 2022
Statement by Governor Bowman on advance notice of proposed rulemaking on resolution requirements for large Banks and application by U.S. Bancorp
Today, the Board acted on two matters: (1) the publication of an advance notice of proposed rulemaking (ANPR) soliciting public feedback on changes to the large bank resolution plan framework, and (2) approval of an application filed by U.S. Bancorp. While I generally support both actions on their individual merits, I believe these matters should not be expressly linked, and there are elements of these actions that raise additional concerns.
Advance Notice of Proposed Rulemaking
While the resolvability of large banking organizations should not be considered in connection with an individual application, it is an important issue that could benefit from public discussion and feedback. It is possible that changes to the existing regulatory and supervisory framework could enhance the resolvability of large banking organizations. In considering any changes, however, it is important to consider possible costs and unintended consequences. For example, the ANPR solicits feedback on whether large banking organizations should be required to issue more long-term debt, which could be "bailed in" to improve resolvability. Increased reliance on long-term debt funding could adversely impact the cost and availability of credit.
I look forward to reviewing public comments on the approaches discussed in the ANPR, including on the costs and benefits of these approaches. While I voted in favor of seeking public comment on the ANPR, this vote does not indicate my support for future rulemaking proposals. I will evaluate future proposals on their merits.
U.S. Bancorp Application
I support the Board's action to approve the U.S. Bancorp application, but I am concerned about several aspects of the approval. I am concerned that the commitment that could impose heightened prudential standards at a fixed date in the future is inconsistent with the Board's existing regulatory framework, which imposes tailored requirements based on clear, quantitative measures of the firm's underlying risk.
The Board has tailored the application of its large banking organization regulatory requirements to match their respective risk profiles based on objective, quantitative thresholds of asset size, cross-jurisdictional activity, reliance on short-term wholesale funding, nonbank assets, and off-balance sheet exposure. As described in the order, both before and after consummation of the proposed transaction, U.S. Bancorp would be classified as "Category III" under the Board's regulations. This imposes specific requirements and expectations that are established by rule. Of course, the firm may grow beyond its Category III designation and therefore be subject to these heightened standards.
Notwithstanding the clear category thresholds established through notice and comment rulemaking, the Board's order suggests that it may require the firm to comply with Category II standards by the end of 2024, regardless of whether the firm would be subject to these requirements by regulation. This determination does not appear to be driven by any specific concern about financial stability. If the Board believes that the firm should be subject to heightened prudential standards in the future to address financial stability concerns, the Board's rules and regulations provide a means to do so1.
1. 12 CFR 252.3(a) Return to text