Regulatory tightening! The United States will strengthen the long-term debt standards for regional banks, aligning with global major banks through a "living will" approach.

To learn from the lessons of the Silicon Valley Bank's collapse in March, which triggered a banking crisis, US regulators plan to introduce new regulations that require regional banks to issue debt and strengthen so-called living wills to prevent future bank failures from causing public losses.

On Tuesday, August 29, Eastern Time, the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve, and the Office of the Comptroller of the Currency (OCC) jointly issued a notice outlining plans to require US banks with assets of at least $100 billion to issue sufficient long-term bonds to absorb potential capital losses in the event of government takeover or extreme stress.

According to the new regulations, these banks must maintain long-term debt at a ratio of at least 3.5% of average total assets or 6% of risk-weighted assets, whichever is higher. Banks are given a three-year period to gradually meet these long-term debt requirements. The plan also discourages banks from holding debt issued by other banks to reduce contagion risk.

Some media outlets have pointed out that the debt requirements proposed in the plan are equivalent to the standards applied to globally systemically important banks (GSIBs) and are now being applied to regional banks.

Other media reports suggest that the plan does not indicate any new signs of stress in the banking industry, but rather represents an attempt by regulators to ensure a swift and orderly resolution in the event of any bank failure. Furthermore, the new plan does not impose total loss-absorbing capacity (TLAC) requirements on the largest and most complex banks.

According to the FDIC, if the new regulations are implemented, large regional banks in the US would need to increase their long-term bond issuance by approximately 25%, equivalent to issuing an additional $70 billion in bonds.

Some banking industry groups have criticized the new regulations.

Greg Baer, CEO of the Bank Policy Institute, a US public policy research organization, believes that if the new regulations are to be implemented, the FDIC must conduct a comprehensive cost-benefit analysis of compliance for medium-sized banks. The new plan attempts to subject regional and medium-sized banks to a regulatory framework designed for the largest global banks, which weakens the targeted framework established by both parties in Congress.

Baer stated that government agencies must fully consider these proposals and carefully assess all costs and benefits. Without careful consideration and adjustments, the new plan could undermine their efforts to strengthen banks.