64524 Federal Register / Vol. 88, No. 180 / Tuesday, September 19, 2023 / Proposed Rules 

DEPARTMENT OF THE TREASURY 

Office of the Comptroller of the 

Currency 

12 CFR Parts 3 and 54 

[Docket ID OCC–2023–0011] 

RIN 1557–AF21 

FEDERAL RESERVE SYSTEM 

12 CFR Parts 216, 217, 238, and 252 

[Regulations P, Q, LL, and YY; Docket No. 

[R–1815]] 

RIN 7100–AG66 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

12 CFR Parts 324 and 374 

RIN 3064–AF86 

Long-Term Debt Requirements for 

Large Bank Holding Companies, 

Certain Intermediate Holding 

Companies of Foreign Banking 

Organizations, and Large Insured 

Depository Institutions 

AGENCY: Office of the Comptroller of the 

Currency, Department of the Treasury; 

Board of Governors of the Federal 

Reserve System; and Federal Deposit 

Insurance Corporation. 

ACTION: Notice of proposed rulemaking 

with request for public comment. 

SUMMARY: The Office of the Comptroller 

of the Currency, the Board of Governors 

of the Federal Reserve System, and the 

Federal Deposit Insurance Corporation 

are issuing a proposed rule for comment 

that would require certain large 

depository institution holding 

companies, U.S. intermediate holding 

companies of foreign banking 

organizations, and certain insured 

depository institutions, to issue and 

maintain outstanding a minimum 

amount of long-term debt. The proposed 

rule would improve the resolvability of 

these banking organizations in case of 

failure, may reduce costs to the Deposit 

Insurance Fund, and mitigate financial 

stability and contagion risks by reducing 

the risk of loss to uninsured depositors. 

DATES: Comments must be received on 

or before November 30, 2023. 

ADDRESSES: Comments should be 

directed to: 

OCC: You may submit comments to 

the OCC by any of the methods set forth 

below. Commenters are encouraged to 

submit comments through the Federal 

eRulemaking Portal. Please use the title 

‘‘Long-term Debt Requirements for Large 

Bank Holding Companies, Certain 

Intermediate Holding Companies of 

Foreign Banking Organizations, and 

Large Insured Depository Institutions’’ 

to facilitate the organization and 

distribution of the comments. You may 

submit comments by any of the 

following methods: 

• Federal eRulemaking Portal— 

Regulations.gov: 

Go to https://regulations.gov/. Enter 

‘‘Docket ID OCC–2023–0011’’ in the 

Search Box and click ‘‘Search.’’ Public 

comments can be submitted via the 

‘‘Comment’’ box below the displayed 

document information or by clicking on 

the document title and then clicking the 

‘‘Comment’’ box on the top-left side of 

the screen. For help with submitting 

effective comments, please click on 

‘‘Commenter’s Checklist.’’ For 

assistance with the Regulations.gov site, 

please call 1–866–498–2945 (toll free) 

Monday–Friday, 9 a.m.–5 p.m. ET, or 

email regulationshelpdesk@gsa.gov. 

• Mail: Chief Counsel’s Office, 

Attention: Comment Processing, Office 

of the Comptroller of the Currency, 400 

7th Street SW, Suite 3E–218, 

Washington, DC 20219. 

• Hand Delivery/Courier: 400 7th 

Street SW, Suite 3E–218, Washington, 

DC 20219. 

Instructions: You must include 

‘‘OCC’’ as the agency name and ‘‘Docket 

ID OCC–2023–0011’’ in your comment. 

In general, the OCC will enter all 

comments received into the docket and 

publish the comments on the 

Regulations.gov website without 

change, including any business or 

personal information provided such as 

name and address information, email 

addresses, or phone numbers. 

Comments received, including 

attachments and other supporting 

materials, are part of the public record 

and subject to public disclosure. Do not 

include any information in your 

comment or supporting materials that 

you consider confidential or 

inappropriate for public disclosure. 

You may review comments and other 

related materials that pertain to this 

action by the following method: 

• Viewing Comments Electronically— 

Regulations.gov: 

Go to https://regulations.gov/. Enter 

‘‘Docket ID OCC–2023–0011’’ in the 

Search Box and click ‘‘Search.’’ Click on 

the ‘‘Dockets’’ tab and then the 

document’s title. After clicking the 

document’s title, click the ‘‘Browse All 

Comments’’ tab. Comments can be 

viewed and filtered by clicking on the 

‘‘Sort By’’ drop-down on the right side 

of the screen or the ‘‘Refine Comments 

Results’’ options on the left side of the 

screen. Supporting materials can be 

viewed by clicking on the ‘‘Browse 

Documents’’ tab. Click on the ‘‘Sort By’’ 

drop-down on the right side of the 

screen or the ‘‘Refine Results’’ options 

on the left side of the screen checking 

the ‘‘Supporting & Related Material’’ 

checkbox. For assistance with the 

Regulations.gov site, please call 1–866– 

498–2945 (toll free) Monday–Friday, 9 

a.m.–5 p.m. ET, or email 

regulationshelpdesk@gsa.gov. 

The docket may be viewed after the 

close of the comment period in the same 

manner as during the comment period. 

Board: You may submit comments to 

the Board, identified by Docket No. R– 

1815 and RIN 7100–AG66, by any of the 

following methods: 

• Agency Website: http://

www.federalreserve.gov. Follow the 

instructions for submitting comments at 

http://www.federalreserve.gov/ 

generalinfo/foia/ProposedRegs.cfm. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Email: regs.comments@

federalreserve.gov. Include docket 

number and RIN in the subject line of 

the message. 

• Fax: (202) 452–3819 or (202) 452– 

3102. 

• Mail: Ann E. Misback, Secretary, 

Board of Governors of the Federal 

Reserve System, 20th Street and 

Constitution Avenue NW, Washington, 

DC 20551. In general, all public 

comments will be made available on the 

Board’s website at 

www.federalreserve.gov/generalinfo/ 

foia/ProposedRegs.cfm as submitted, 

and will not be modified to remove 

confidential, contact or any identifiable 

information. Public comments may also 

be viewed electronically or in paper in 

Room M–4365A, 2001 C St. NW 

Washington, DC 20551, between 9:00 

a.m. and 5:00 p.m. during federal 

business weekdays. 

FDIC: You may submit comments to 

the FDIC, identified by RIN 3064–AF86, 

by any of the following methods: 

• Agency Website: https://

www.fdic.gov/resources/regulations/ 

federal-register-publications/. Follow 

instructions for submitting comments 

on the FDIC website. 

• Mail: James P. Sheesley, Assistant 

Executive Secretary, Attention: 

Comments/Legal OES (RIN 3064–AF86), 

Federal Deposit Insurance Corporation, 

550 17th Street NW, Washington, DC 

20429. 

• Hand Delivered/Courier: Comments 

may be hand-delivered to the guard 

station at the rear of the 550 17th Street 

NW building (located on F Street NW) 

on business days between 7 a.m. and 5 

p.m. 


ddrumheller on DSK120RN23PROD with PROPOSALS2
Federal Register / Vol. 88, No. 180 / Tuesday, September 19, 2023 / Proposed Rules 64525 

1See Resolution-Related Resource Requirements 

for Large Banking Organizations, 87 FR 64170 (Oct. 

24, 2022), https://www.federalregister.gov/ 

documents/2022/10/24/2022-23003/resolutionrelated-resource-requirements-for-large-bankingorganizations. 

• Email: comments@FDIC.gov. 

Include RIN 3064–AF86 on the subject 

line of the message. 

• Public Inspection: Comments 

received, including any personal 

information provided, may be posted 

without change to https://www.fdic.gov/ 

resources/regulations/federal-registerpublications/. Commenters should 

submit only information that the 

commenter wishes to make available 

publicly. The FDIC may review, redact, 

or refrain from posting all or any portion 

of any comment that it may deem to be 

inappropriate for publication, such as 

irrelevant or obscene material. The FDIC 

may post only a single representative 

example of identical or substantially 

identical comments, and in such cases 

will generally identify the number of 

identical or substantially identical 

comments represented by the posted 

example. All comments that have been 

redacted, as well as those that have not 

been posted, that contain comments on 

the merits of this notice will be retained 

in the public comment file and will be 

considered as required under all 

applicable laws. All comments may be 

accessible under the Freedom of 

Information Act. 

FOR FURTHER INFORMATION CONTACT: 

OCC: Andrew Tschirhart, Risk Expert, 

Capital and Regulatory Policy, (202) 

649–6370; or Carl Kaminski, Assistant 

Director, or Joanne Phillips, Counsel, 

Chief Counsel’s Office, (202) 649–5490, 

Office of the Comptroller of the 

Currency, 400 7th Street SW, 

Washington, DC 20219. If you are deaf, 

hard of hearing, or have a speech 

disability, please dial 7–1–1 to access 

telecommunications relay services. 

Board: Molly Mahar, Senior Associate 

Director, (202) 973–7360, Juan Climent, 

Assistant Director, (202) 872–7526, 

Francis Kuo, Lead Financial Institution 

Policy Analyst (202) 530–6224, Lesley 

Chao, Lead Financial Institution Policy 

Analyst, (202) 974–7063, Tudor Rus, 

Lead Financial Institution Policy 

Analyst, (202) 475–6359, Lars Arnesen, 

Senior Financial Institution Policy 

Analyst, (202) 452–2030, Division of 

Supervision and Regulation; or Charles 

Gray, Deputy General Counsel, (202) 

872–7589, Reena Sahni, Associate 

General Counsel, (202) 452–3236, Jay 

Schwarz, Assistant General Counsel, 

(202) 452–2970, Josh Strazanac, 

Counsel, (202) 452–2457, Brian Kesten, 

Senior Attorney, (202) 475–6650, Jacob 

Fraley, Legal Assistant/Attorney, (202) 

452–3127, Legal Division; For users text 

telephone systems (TTY) or any TTYbased Telecommunications Relay 

Services, please call 711 from any 

telephone, anywhere in the United 

States; Board of Governors of the 

Federal Reserve System, 20th Street and 

Constitution Avenue NW, Washington, 

DC 20551. 

FDIC: Andrew J. Felton, Deputy 

Director, (202) 898–3691; Ryan P. 

Tetrick, Deputy Director, (202) 898– 

7028; Elizabeth Falloon, Senior Advisor, 

(202) 898–6626; Jenny G. Traille, Acting 

Senior Deputy Director, (202) 898–3608; 

Julia E. Paris, Senior Cross-Border 

Specialist, (202) 898–3821; Division of 

Complex Institution Supervision and 

Resolution; R. Penfield Starke, Acting 

Deputy General Counsel, rstarke@

fdic.gov; David Wall, Assistant General 

Counsel, (202) 898–6575; F. Angus 

Tarpley III, Counsel, (202) 898–8521; 

Dena S. Kessler, Counsel, (202) 898– 

3833, Legal Division, Federal Deposit 

Insurance Corporation, 550 17th Street 

NW, Washington, DC 20429. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Introduction and Overview of the Proposal 

A. Background and Introduction 

B. Overview of the Proposal 

II. Advance Notice of Proposed Rulemaking 

III. LTD Requirement for Covered Entities 

A. Scope of Application 

B. Covered Savings and Loan Holding 

Companies 

C. Calibration of Covered Entity LTD 

Requirement 

IV. LTD Requirement for Covered IDIs 

A. Scope of Application 

B. Calibration of Covered IDI LTD 

Requirement 

V. Features of Eligible LTD 

A. Eligible External LTD 

B. Eligible Internal LTD 

C. Special Considerations for Covered IHCs 

D. Legacy External LTD Counted Towards 

Requirements 

VI. Clean Holding Company Requirements 

A. No External Issuance of Short-Term 

Debt Instruments 

B. Qualified Financial Contracts With 

Third Parties 

C. Guarantees That are Subject to CrossDefaults 

D. Upstream Guarantees and Offset Rights 

E. Cap on Certain Liabilities 

VII. Deduction of Investments in Eligible 

External LTD From Regulatory Capital 

VIII. Transition Periods 

IX. Changes to the Board’s TLAC rule 

A. Haircut for LTD Used to Meet TLAC 

Requirement 

B. Minimum Denominations for LTD Used 

to Satisfy TLAC Requirements 

C. Treatment of Certain Transactions for 

Clean Holding Company Requirements 

D. Disclosure Templates for TLAC HCs 

E. Reservation of Authority 

F. Technical Changes To Accommodate 

New Requirements 

X. Economic Impact Assessment 

A. Introduction and Scope of Application 

B. Benefits 

C. Costs 

XI. Regulatory Analysis 

A. Paperwork Reduction Act 

B. Regulatory Flexibility Act 

C. Riegle Community Development and 

Regulatory Improvement Act of 1994 

D. Solicitation of Comments on the use of 

Plain Language 

E. OCC Unfunded Mandates Reform Act of 

1995 determination 

F. Providing Accountability Through 

Transparency Act of 2023 

I. Introduction and Overview of the 

Proposal 

A. Background and Introduction 

Following the 2008 financial crisis, 

the Office of the Comptroller of the 

Currency (OCC), Board of Governors of 

the Federal Reserve System (Board), and 

Federal Deposit Insurance Corporation 

(FDIC and, together with the OCC and 

the Board, the ‘‘agencies’’) adopted rules 

and guidance, both jointly and 

individually, to improve the 

resolvability, resilience, and safety and 

soundness of all banking organizations. 

The agencies have continued to evaluate 

whether existing regulations are 

appropriate to address evolving risks. In 

recent years, certain banking 

organizations that are not global 

systemically important banking 

organizations (GSIBs) have grown in 

size and complexity, and new 

vulnerabilities have emerged, such as 

increased reliance on uninsured 

deposits. In light of these trends, the 

Board and the FDIC issued an advance 

notice of proposed rulemaking (ANPR) 

in October 2022 seeking public input on 

whether a long-term debt requirement 

was appropriate to address the financial 

stability risk associated with the 

material distress or failure of certain 

non-GSIB large banking organizations.1

More recently, the insured depository 

institutions (IDIs) of certain non-GSIB 

banking organizations with consolidated 

assets of $100 billion or more 

experienced significant withdrawals of 

uninsured deposits in response to 

underlying weaknesses in their financial 

position, precipitating their failures. 

These events have further highlighted 

the risk that the failure of one of these 

banking organizations can spread to 

other financial institutions and 

potentially give rise to systemic risk. 

Moreover, these recent IDI failures have 

resulted in significant costs to the 

FDIC’s Deposit Insurance Fund (DIF). 

To address these risks, the Board is 

proposing to require Category II, III, and 

IV bank holding companies (BHCs) and 


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64526 Federal Register / Vol. 88, No. 180 / Tuesday, September 19, 2023 / Proposed Rules 

2 IDIs that are consolidated subsidiaries of U.S. 

GSIBs would not be subject to the proposed LTD 

requirement because their parent holding 

companies are subject to the LTD requirement 

under the Board’s total loss-absorbing capacity 

(TLAC) rule. See 12 CFR 252 subparts G and P. In 

addition, U.S. GSIBs are subject to the most 

stringent capital, liquidity, and other prudential 

standards in the United States. These firms also 

have adopted resolution plans reflecting guidance 

issued by the Board and the FDIC which establishes 

a capital and liquidity framework for resolution. 

The guidance (including the provisions related to 

Resolution Capital Adequacy and Positioning, or 

RCAP) is designed to ensure adequate maintenance 

of loss-absorbing resources either at the parent or 

at material subsidiaries such that all material 

subsidiaries, including IDIs, could be recapitalized 

in the event of resolution under the single point of 

entry resolution strategies adopted by the U.S. 

GSIBs. See Guidance for § 165(d) Resolution Plan 

Submissions by Domestic Covered Companies 

applicable to the Eight Largest, Complex U.S. 

Banking Organizations, 84 FR 1438 (Feb. 4, 2019), 

https://www.federalregister.gov/documents/2019/ 

02/04/2019-00800/final-guidance-for-the-2019. 

3According to FR Y–9C and Call Report data as 

of December 31, 2022, for domestic Category II, III 

and IV BHCs and SLHCs with more than $100 

billion in total assets, excluding U.S. GSIBs and 

grandfathered unitary SLHCs, deposits account for 

approximately 82 percent of total liabilities. Review 

of the Federal Reserve’s Supervision and Regulation 

of Silicon Valley Bank, Table 1 (Apr. 2023) (SVB 

Report), https://www.federalreserve.gov/ 

publications/files/svb-review-20230428.pdf. 

Comparatively, across the U.S. GSIBs, deposits 

account for approximately 54 percent of total 

liabilities. 

4 Data from Call Reports show that the proportion 

of uninsured deposits to total deposits at covered 

entities increased from about 31 percent to 43 

percent from 2009 to 2022. 

5See FDIC, Deposit Inflows and Outflows in 

Failing Banks: The Role of Deposit Insurance (last 

updated July 15, 2022), https://www.fdic.gov/ 

analysis/cfr/working-papers/2018/cfr-wp2018-02- 

update.pdf. 

6See 12 U.S.C. 1823(c)(4). 

7 Invocation of the systemic risk exception allows 

the FDIC to take actions that could be inconsistent 

with the least-cost requirement in the FDI Act. The 

systemic risk exception determination can only be 

made by the Secretary of the Treasury, in 

consultation with the President, and with the 

recommendation of two-thirds of the boards of the 

Board and the FDIC, upon a determination that 

compliance with the least-cost requirement would 

have serious adverse effects on economic 

savings and loan holding companies 

(SLHCs and, together with BHCs, 

‘‘covered HCs’’), and Category II, III, and 

IV U.S. intermediate holding companies 

(IHCs) of foreign banking organizations 

(FBOs) that are not GSIBs (‘‘covered 

IHCs’’ and, together with covered HCs, 

‘‘covered entities’’) to issue and 

maintain minimum amounts of longterm debt (LTD) that satisfies certain 

requirements. The agencies also are 

proposing to require IDIs that are not 

consolidated subsidiaries of U.S. GSIBs 

and that (i) have at least $100 billion in 

consolidated assets or (ii) are affiliated 

with IDIs that have at least $100 billion 

in consolidated assets (covered IDIs) to 

issue and maintain minimum amounts 

of LTD.2 Under the proposal, covered 

IDIs that are consolidated subsidiaries of 

covered entities would be required to 

issue the LTD internally to a company 

that consolidates the covered IDI, which 

would in turn be required to purchase 

that LTD. Covered IDIs that are not 

consolidated subsidiaries of covered 

entities would be permitted (and where 

there is no controlling parent, required) 

to issue their LTD externally to 

nonaffiliates. Under the proposal, only 

debt instruments that are most readily 

able to absorb losses in a resolution 

proceeding would qualify as eligible 

LTD. Therefore, the agencies believe the 

proposal would improve the 

resolvability of covered entities and 

covered IDIs. 

By augmenting loss-absorbing 

capacity, LTD can provide banking 

organizations and banking regulators 

greater flexibility in responding to the 

failure of covered entities and covered 

IDIs. In the resolution of a failed IDI, the 

availability of an outstanding amount of 

LTD may increase the likelihood of an 

orderly and cost-effective resolution for 

the IDI and may help minimize costs to 

the DIF. Even where the amount of 

outstanding LTD is insufficient to 

absorb enough losses so that all 

depositor claims at the IDI can be fully 

satisfied, it would reduce potential costs 

to the DIF and may expand the range of 

options available to the FDIC as 

receiver. In addition, the proposed LTD 

requirement could improve the 

resilience of covered entities and 

covered IDIs by enhancing the stability 

of their funding profiles. Investors in 

LTD could also exercise market 

discipline over issuers of LTD. 

1. Risks Presented by Covered Entities 

and Covered IDIs, and Challenges in 

Resolution 

Covered entities today primarily 

operate a bank-centric business model, 

with deposits providing the main source 

of their funding.3 Following the 2008 

financial crisis, the reliance of covered 

entities on uninsured deposits grew 

dramatically.4 This increased reliance 

on uninsured deposit funding has given 

rise to vulnerabilities at these banking 

organizations. 

As recent events have highlighted, 

high levels of uninsured deposit 

funding can pose an especially 

significant risk of bank runs when 

customers grow concerned over the 

solvency of their bank. The failure of 

covered entities or covered IDIs can also 

spread to a broader range of banking 

organizations, impacting the provision 

of financial services and access to credit 

for individuals, families, and 

businesses. FDIC research shows that 

account holders with uninsured 

deposits are more sensitive to negative 

news regarding the stability of their 

banks and are more likely to withdraw 

funds to protect themselves than those 

holding only insured deposits.5 The 

sensitivity of uninsured depositors to 

information flows has been amplified by 

social media, potentially further 

shortening the timeline between a 

banking organization experiencing a 

negative news event and being faced 

with a potential deposit run. This can, 

in turn, bring about the rapid failure of 

a covered entity, forcing its IDI 

subsidiary into an FDIC receivership 

with little runway for recovery steps to 

be implemented or for contingency 

planning for resolution. The speed at 

which stress occurs has the potential to 

cause contagion to other institutions 

perceived to be similarly situated. 

Among covered entities that are 

subject to resolution planning 

requirements under Title I of the DoddFrank Wall Street Reform and Consumer 

Protection Act (Dodd-Frank Act), most 

indicate that their preferred resolution 

strategy involves the resolution of their 

IDI subsidiaries under the Federal 

Deposit Insurance Act of 1950, as 

amended (FDI Act), with the covered 

entities being resolved under Chapter 11 

of the U.S. Bankruptcy Code. In the 

resolution of an IDI under the FDI Act, 

the FDIC as receiver has a variety of 

strategic options, including, among 

others, selling the IDI’s assets and 

transferring its deposit liabilities to one 

or more healthy acquirers, transferring 

the IDI’s assets and deposit liabilities to 

a bridge depository institution, or 

executing an insured deposit payout 

and liquidation of the assets of the 

failed bank. Many covered entities focus 

in their resolution plans on a bridge 

strategy where the FDIC transfers the 

assets and deposit liabilities of a failed 

IDI to a newly organized bridge 

depository institution that the FDIC 

continues to operate. This resolution 

option can allow the FDIC to effectively 

stabilize the operations of the failed IDI 

and preserve the failed IDI’s franchise 

value, making the business of the failed 

IDI or its separate business lines more 

attractive to a greater number of 

potential acquirers. 

The FDIC is required by section 13(c) 

of the FDI Act to resolve an IDI in a 

manner that poses the least cost to the 

DIF.6 Depending on the losses incurred 

at an IDI and on the liability structure 

of the IDI, the FDIC could be required 

to impose losses on the IDI’s uninsured 

depositors in order to satisfy the leastcost requirement, unless the systemic 

risk exception is invoked.7 As recent 


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conditions or financial stability. 12 U.S.C. 

1823(c)(4)(G). 

8Regional banking organizations generally are 

considered those with total consolidated assets 

between $10 billion and $100 billion. See, e.g., SVB 

Report. 

9See GAO, Preliminary Review of Agency 

Actions Related to March 2023 Bank Failures at 32 

(Apr. 28, 2023), https://www.gao.gov/assets/gao-23- 

106736.pdf. 

10The proposal would also require covered 

entities to purchase the debt of their subsidiaries 

that are internally issuing IDIs under the proposal. 

11The IDI requirement would apply to an IDI of 

a U.S. IHC regardless of whether the U.S. IHC is 

subject to the Board’s TLAC rule, provided the IDI 

meets the other requirements for applicability. See 

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, 82 FR 8266 (Jan. 24, 2017), https:// 

www.federalregister.gov/documents/2017/01/24/ 

2017-00431/total-loss-absorbing-capacity-longterm-debt-and-clean-holding-companyrequirements-for-systemically. 

12A subsidiary is considered a consolidated 

subsidiary based on U.S. generally accepted 

accounting principles (GAAP); consolidation 

generally applies when its holding company 

controls a majority (greater than 50 percent) of the 

outstanding voting interests. 

experiences have demonstrated, if 

uninsured depositors believe they might 

lose a portion of their deposit funds or 

they might encounter interrupted access 

to such funds, contagion can spread to 

other institutions and cause deposit 

runs beyond those at the failing IDI. 

The recent failures of three IDIs that 

would have been covered within the 

scope of this proposal, Silicon Valley 

Bank (SVB), Signature Bank (SBNY), 

and First Republic Bank (First 

Republic), highlighted the risks posed 

by the failure of a covered IDI, including 

systemic contagion, as well as the 

challenges that the FDIC can face in 

executing an orderly resolution for 

covered IDIs. The comparative absence 

of alternate forms of stable funding in 

these cases, other than equity and 

deposits, increased these banks’ 

vulnerability to deposit runs, and these 

runs precipitated their failures. Despite 

prompt action taken by regulators to 

facilitate the resolution of these failed 

IDIs, there was contagion in the banking 

sector, particularly for certain covered 

entities and certain regional banking 

organizations,8 some of which 

experienced higher than normal deposit 

outflows during this time.9 The 

proposed rule, if fully implemented at 

the time of the failure of these firms, 

would have provided billions of dollars 

of additional loss-absorbing capacity. 

The agencies believe that the presence 

of a substantial layer of liabilities that 

absorbs losses ahead of uninsured 

depositors could have reduced the 

likelihood of those depositors running, 

might have facilitated resolution options 

that were not otherwise available and 

could have made systemic risk 

determinations unnecessary. 

2. Key Benefits and Rationale of the 

Proposal 

The proposed LTD requirements 

would improve the resolvability of 

covered entities and covered IDIs 

because LTD can be used to absorb loss 

and create equity in resolution. In 

particular, because LTD is subordinate 

to deposits and can be used by the FDIC 

to absorb losses by leaving it behind in 

the receivership estate of a failed IDI, it 

can help mitigate the risk that any 

depositors would take losses in the 

resolution of the IDI. Because LTD 

absorbs losses before deposits, an LTD 

requirement at the covered IDI would 

give the FDIC greater flexibility, 

including the potential to transfer all 

deposit liabilities (including uninsured 

deposit liabilities) of a failed IDI to an 

acquirer or to a bridge depository 

institution in a manner consistent with 

the FDI Act’s least-cost requirement. 

Expanding the FDIC’s range of options 

for resolving a failed IDI to potentially 

include the use of a bridge depository 

institution that can assume all deposits 

on a least-cost basis can significantly 

improve the prospect of an orderly 

resolution. When an IDI fails quickly, a 

bridge depository institution might 

afford the FDIC additional time to find 

an acquirer for the IDI’s assets and 

deposits. Transfer of deposits and assets 

to a bridge depository institution may 

also give the FDIC additional time to 

execute a variety of resolution strategies, 

such as selling the IDI in pieces over 

time or effectuating a spin-off of all or 

parts of the IDI’s operations or business 

lines. LTD can therefore reduce costs to 

the DIF and expand the available 

resolution options if a bank fails. The 

availability of LTD would also improve 

the FDIC’s options for resolving a failed 

IDI by maintaining franchise value, 

improving the marketability of the failed 

IDI, and reducing the need to use DIF 

resources to stabilize the institution or 

support a purchaser. Further, the 

availability of LTD could enable 

strategies involving bridge depository 

institutions to meet the least-cost test. 

The availability of LTD resources would 

also potentially support resolution 

strategies that involve a recapitalized 

bridge depository institution exiting 

from resolution on an independent basis 

as a newly-chartered IDI that would 

have new ownership. This may be 

particularly important in circumstances 

where there are market or other 

limitations that preclude finding a 

suitable acquirer, and where other 

options, such as liquidation, are not 

feasible or involve unacceptable levels 

of systemic risk. Further, there may be 

a limited market for the covered IDIs 

subject to this proposal due to their size 

and, in some cases, relatively more 

specialized business models. As a 

result, at the time of resolution, 

strategies that involve the sale of large 

IDIs may be limited due to market or 

other barriers, or may involve high costs 

in order to make a sale attractive and 

feasible for an acquirer, especially 

taking into account post-acquisition 

capital requirements. The availability of 

LTD to absorb losses or to recapitalize 

a failed IDI through the resolution 

process could also mitigate the impact 

of a covered IDI’s failure on financial 

stability by reducing the risk to 

uninsured depositors, thereby reducing 

the risk of runs and contagion. LTD can 

therefore reduce costs to the DIF and 

expand the available resolution options 

if a bank fails. 

Although the primary benefits of LTD 

relate to the resolution of covered 

entities and their covered IDI 

subsidiaries, LTD can also improve the 

resiliency of these banking 

organizations prior to failure. 

Considering its long maturity, LTD 

would be a stable source of funding and, 

in contrast to other forms of funding like 

uninsured deposits, may serve as a 

source of market discipline through 

pricing. 

B. Overview of the Proposal 

The agencies are inviting comment on 

this notice of proposed rulemaking to 

improve the resolvability of covered 

entities and covered IDIs. The proposal 

includes five key components. 

First, the proposal would require 

Category II, III, and IV covered entities 

to issue and maintain outstanding 

minimum levels of eligible LTD. This 

aspect of the proposal is being issued 

solely by the Board.10

Second, the proposal would require 

covered IDIs to issue and maintain 

outstanding a minimum amount of 

eligible LTD.11 This aspect of the 

proposal is being issued by all of the 

agencies. A covered IDI that is a 

consolidated subsidiary of a covered 

entity or a foreign GSIB IHC would be 

required to issue eligible LTD internally 

to an entity that directly or indirectly 

consolidates the covered IDI.12 A 

covered IDI that is not a controlled 

subsidiary of a further parent entity 

would be required to issue eligible LTD 

to investors that are not affiliates. A 

covered IDI that is a consolidated 

subsidiary of a further parent entity that 


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13Upstream guarantees are when a parent 

company’s obligations are guaranteed by one of its 

subsidiaries. 

14On July 27, 2023, the agencies issued a notice 

of proposed rulemaking inviting comment on a 

proposal to amend the capital rule. See Joint press 

release: Agencies request comment on proposed 

rules to strengthen capital requirements for large 

banks (July 27, 2023), https://

www.federalreserve.gov/newsevents/pressreleases/ 

bcreg20230727a.htm. 

15Resolution-Related Resource Requirements for 

Large Banking Organizations, 87 FR 64170 (Oct. 24, 

2022), https://www.federalregister.gov/documents/ 

2022/10/24/2022-23003/resolution-relatedresource-requirements-for-large-bankingorganizations. 

16Public Law 111–203; 124 Stat. 1376 (2010), 

codified at 12 U.S.C. 5365(b). 

is not a covered entity or that is a 

controlled but not consolidated 

subsidiary of a covered entity or a 

foreign GSIB IHC would be permitted to 

issue eligible LTD to a company that 

controls the covered IDI or to investors 

that are not affiliates. 

Third, the operations of covered 

entities would be subject to ‘‘clean 

holding company’’ requirements to 

further improve the resolvability of 

covered entities and their operating 

subsidiaries. This aspect of the proposal 

is being issued solely by the Board. In 

particular, the proposal would prohibit 

covered entities from issuing short-term 

debt instruments to third parties, 

entering into qualified financial 

contracts (QFCs) with third parties, 

having liabilities that are subject to 

‘‘upstream guarantees’’ 13 or that are 

subject to contractual offset against 

amounts owed to subsidiaries of the 

covered entity. The proposal would also 

cap the amount of a covered entity’s 

liabilities that are not LTD and that rank 

at either the same priority as or junior 

to its eligible external LTD at 5 percent 

of the sum of the covered entity’s 

common equity tier 1 capital, additional 

tier 1 capital, and eligible LTD amount. 

Fourth, to limit the potential for 

financial sector contagion due to 

interconnectivity in the event of the 

failure of a covered entity or covered 

IDI, the proposed rule would expand the 

existing capital deduction framework 

for LTD issued by U.S. GSIBs and the 

IHCs of foreign GSIBs to include 

external LTD issued by covered entities 

and external LTD issued by covered 

IDIs. This aspect of the proposal is being 

issued by all of the agencies. 

Finally, the proposal would make 

certain technical changes to the existing 

TLAC rule that applies to the U.S. GSIBs 

and U.S. IHCs of foreign GSIBs. This 

aspect of the proposal is being issued 

solely by the Board. These changes 

would harmonize provisions within the 

TLAC rule and address items that have 

been identified through the Board’s 

administration of the rule. 

The revisions introduced by the 

proposal would interact with the 

agencies’ capital rule and proposed 

amendments to those rules.14

Question 1: The agencies invite 

comment on the implications of the 

interaction of the proposal with other 

existing rules and with other notices of 

proposed rulemaking. How do proposed 

changes to the agencies’ capital rule 

affect the advantages and disadvantages 

of this proposed rule? 

II. Advance Notice of Proposed 

Rulemaking 

In October 2022, the Board and the 

FDIC published an ANPR to solicit 

public input regarding whether an extra 

layer of loss-absorbing capacity could 

improve optionality in resolving certain 

large banking organizations and their 

subsidiary IDIs, and the costs and 

benefits of such a requirement.15 The 

Board and the FDIC received nearly 80 

comments on the ANPR from banking 

organizations, trade associations, public 

interest advocacy groups, members of 

Congress, and private individuals. Two 

members of the Senate Banking 

Committee as well as an advocacy group 

representing independent banks 

supported the proposal. Most 

commenters opposed or raised concerns 

regarding the proposal. However, most 

of the comments were received prior to 

the recent bank stress events involving 

SVB, SBNY, and First Republic and 

therefore did not take those events into 

consideration. 

Many commenters asserted that an 

LTD requirement for covered entities 

and covered IDIs is unnecessary and 

that most covered entities and covered 

IDIs are prepared for orderly resolution 

pursuant to their existing resolution 

plans submitted to the FDIC and the 

Board. Specifically, commenters argued 

that covered entities are better 

capitalized and have stronger liquidity 

positions under post-crisis regulations, 

and that covered entities are noncomplex and present minimal systemic 

risk. The commenters also maintained 

that recent balance sheet growth at 

covered entities is not concerning 

because such growth has involved 

increases in mostly low-risk, liquid 

assets. Further, commenters asserted 

that the resolution plans that have been 

submitted to the agencies by the covered 

entities and covered IDIs subject to such 

requirements are effective and already 

provide for optionality in resolution. 

The commenters argued that the 

imposition of a uniform LTD 

requirement would be inappropriate for 

the multiple point of entry (MPOE) 

resolution strategies followed by certain 

covered entities and could require 

covered entities to unnecessarily change 

their established resolution plans. 

Commenters also argued that 

anticipated stronger capital 

requirements that would be imposed 

pursuant to the anticipated Basel III 

finalization reforms would further 

diminish the need for an LTD 

requirement. 

Multiple commenters, while 

supporting the spirit of the policy 

options raised in the ANPR, suggested 

the agencies should raise equity capital 

requirements rather than impose an LTD 

requirement to improve the resiliency of 

covered entities. Alternatively, some 

commenters argued that covered entities 

should be able to count any equity 

capital in excess of regulatory 

minimums toward any LTD 

requirement. 

Several commenters argued that the 

benefits of an LTD requirement for 

covered entities would not outweigh its 

immediate costs. These commenters 

asserted that an excessive LTD 

requirement could decrease the 

availability of credit to businesses and 

consumers. Further, a few commenters 

suggested that an LTD requirement 

could imply uninsured depositor 

protection for IDIs subject to such a 

requirement, thereby increasing moral 

hazard. Several commenters stressed 

that any LTD requirement should be 

supported by a rigorous cost-benefit 

analysis. 

Finally, several commenters 

questioned whether the Board possesses 

the statutory authority to impose an 

LTD requirement on BHCs under 

section 165(b) of the Dodd-Frank Act, as 

amended.16 These commenters argued 

that the Board’s authority under section 

165 to issue enhanced prudential 

standards is limited to addressing 

financial stability risks. Commenters 

stated that covered entities do not pose 

a threat to financial stability and it is 

uncertain whether section 165(b) 

supports imposing an LTD requirement 

on covered entities. 

The agencies considered these 

comments in developing the proposed 

rule. In light of recent experiences with 

SVB, SBNY, and First Republic, the 

agencies are extending the scope of the 

proposed rule to large banking 

organization with total consolidated 

assets of $100 billion or more to reduce 

the likelihood of contagion from these 

banking organizations and to reduce the 

cost to the DIF should they fail. The 

agencies further note that both equity 

capital and LTD can be used to absorb 

losses and reduce the potential impact 


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17 12 CFR 252.2 (BHCs and U.S. IHCs under 

Regulation YY); 12 CFR 238.2(cc)–(ee) (SLHCs 

under Regulation LL). 18 12 CFR 252.5(c) (BHCs and IHCs); 12 CFR 

238.10(b) (SLHCs). 19 12 CFR 252.5(d) (BHCs and IHCs); 12 CFR 

238.10(c) (SLHCs). 20 12 CFR 252.5(e) (BHCs and IHCs); 12 CFR 

238.10(d) (SLHCs). 21SBNY had total consolidated assets of around 

$110 billion, SVB had total consolidated assets of 

just over $200 billion, and First Republic had total 

consolidated assets of just over $230 billion at the 

time of failure. The agencies note that neither SBNY 

nor First Republic had a holding company, so in 

those cases it was solely an IDI that failed. However, 

their failures illustrate the potential risk of 

contagion in the event of the material distress or 

failure of a large IDI. 22 12 U.S.C. 1467a(g). 

23 12 U.S.C. 5365(a)(1). 

24Section 401(b) of the Economic Growth, 

Regulatory Relief, and Consumer Protection Act, 

Public Law 115–174, 132 Stat. 1356 (2018). 

25The proposed rule would not apply to an SLHC 

with 25 percent or more of its total consolidated 

assets in insurance underwriting subsidiaries (other 

than assets associated with insurance underwriting 

for credit), an SLHC with a top-tier holding 

company that is an insurance underwriting 

company, or a grandfathered unitary SLHC that 

derives a majority of its assets or revenues from 

activities that are not financial in nature under 

section 4(k) of the Bank Holding Company Act (12 

U.S.C. 1843(k)). See 12 CFR 238.2(ff). 

from the failure of a large banking 

organization; unlike equity capital, 

however, LTD can always be used as a 

fresh source of capital subsequent to 

failure and can afford the FDIC more 

options in resolving a failed bank. 

III. LTD Requirement for Covered 

Entities 

A. Scope of Application 

The proposed rule would apply to 

Category II, III, and IV U.S. BHCs and 

SLHCs, and Category II, III, and IV U.S. 

IHCs of FBOs that are not currently 

subject to the existing TLAC rule as 

defined under the Board’s Regulations 

LL and YY (covered entities).17 Under 

Regulations LL and YY, a Category II 

covered entity is one that has (i) at least 

$700 billion or more in average total 

consolidated assets, or (ii) at least $100 

billion in average total consolidated 

assets and $75 billion or more in 

average cross-jurisdictional activity.18 A 

Category III covered entity is one that 

has (i) at least $250 billion in average 

total consolidated assets, or (ii) (A) $100 

billion in average total consolidated 

assets and (B) $75 billion or more in 

average total nonbank assets, average 

weighted short-term wholesale funding, 

or average off-balance sheet exposure.19

A Category IV covered entity is one that 

has at least $100 billion in average total 

consolidated assets.20

Given the size of covered entities, the 

agencies continue to believe that the 

failure of one or more covered entities 

or covered IDIs could potentially have a 

negative impact on U.S. financial 

markets and the broader U.S. economy. 

While several commenters to the ANPR 

downplayed this concern, this risk was 

demonstrated by the recent failures of 

SBNY, SVB, and First Republic,21 which 

contributed to depositor outflows at 

other banking organizations. In 

addition, some covered entities have 

operations that have been identified as 

critical operations by the Board and 

FDIC, the disorderly wind down of 

which could pose additional risks to 

U.S. financial stability. These financial 

stability implications may increase the 

likelihood regulators quickly resolve a 

covered entity by selling its assets to a 

larger acquirer, an approach that may 

itself add to long-term financial stability 

concerns from increased concentration 

in the banking sector. 

Question 2: Does the proposed scope 

of application appropriately address the 

risks discussed above? What additional 

factors, if any, should the Board 

consider in determining which entities 

should be subject to the proposed rule, 

other than those that are used to 

determine whether a covered entity is 

placed within Categories II–IV? For 

example, what additional or alternate 

factors should the Board consider in 

setting requirements for IHCs (e.g., 

should the proposed rule only apply to 

IHCs with IDIs that would be subject to 

the proposed rule’s IDI requirements)? 

Are there elements of the rule that 

should be applied differently to 

Category IV organizations as compared 

to Category II and III organizations, and 

what would be the advantages and 

disadvantages of such differences in 

requirements? 

Question 3: What additional 

characteristics of banking organizations 

should the Board consider in setting the 

scope of the proposed rule and why? 

Should consideration be given to 

additional characteristics such as 

reliance on uninsured deposits; 

proportion of assets, income, and 

employees outside of the IDI; or to other 

aspects of a covered entity’s balance 

sheet? How should these characteristics 

affect the proposed scope? Please 

explain. 

B. Covered Savings and Loan Holding 

Companies 

As noted above, the proposed rule 

would apply to Category II, III, and IV 

SLHCs, as defined in 12 CFR 238.10. 

Section 10(g) of the Home Owners’ Loan 

Act (HOLA) 22 authorizes the Board to 

issue such regulations and orders 

regarding SLHCs, including regulations 

relating to capital requirements, as the 

Board deems necessary or appropriate to 

administer and carry out the purposes of 

section 10 of HOLA. As the primary 

Federal regulator and supervisor of 

SLHCs, one of the Board’s objectives is 

to ensure that SLHCs operate in a safeand-sound manner and in compliance 

with applicable law. Like BHCs, SLHCs 

must serve as a source of strength to 

their subsidiary savings associations 

and may not conduct operations in an 

unsafe and unsound manner. 

Section 165 of the Dodd-Frank Act 

directs the Board to establish specific 

enhanced prudential standards for large 

BHCs and companies designated by the 

Financial Stability Oversight Council to 

prevent or mitigate risks to the financial 

stability of the United States.23 Section 

165 does not prohibit the application of 

standards to SLHCs and BHCs pursuant 

to other statutory authorities.24

SLHCs that are covered HCs engage in 

many of the same activities and face 

similar risks as BHCs that are covered 

HCs. SLHCs that are covered HCs are 

substantially engaged in banking and 

financial activities, including deposit 

taking and lending.25 Some SLHCs that 

are covered HCs engage in credit card 

and margin lending and certain complex 

nonbanking activities that pose higher 

levels of risk. SLHCs that are covered 

HCs may also rely on high levels of 

short-term wholesale funding, which 

may require sophisticated capital, 

liquidity, and risk management 

processes. Similar to BHCs that are 

covered HCs, SLHCs that are covered 

HCs conduct business across a large 

geographic footprint, which in times of 

stress could present certain operational 

risks and complexities. Subjecting 

SLHCs that are covered HCs to the 

proposed rule would improve their 

resolvability and promote their safe and 

sound operations. 

Question 4: What are the advantages 

and disadvantages to applying the 

proposed rule to SLHCs that are covered 

HCs in addition to BHCs that are 

covered HCs? How are the risks that an 

SLHC poses in resolution different from 

the risks that a BHC poses in resolution? 

How might those differences warrant a 

different LTD requirement for SLHCs 

relative to BHCs? 

C. Calibration of Covered Entity LTD 

Requirement 

Under the proposal, a covered entity 

would be required to maintain 

outstanding eligible LTD in an amount 

that is the greater of 6.0 percent of the 

covered entity’s total risk-weighted 


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26Total risk weighted assets would be defined as 

the greater of a bank’s standardized total riskweighted assets and advanced approaches total riskweighted assets, if applicable. 

27For purposes of the LTD minimum 

requirement, average total consolidated assets is 

defined as the denominator of the Board’s tier 1 

leverage ratio requirement. See 12 CFR 217.10(b)(4). 

28See 12 CFR 217.10(c)(2). 

29See 12 CFR 217.11. A covered entity may be 

subject to a buffer greater than 2.5 percent under the 

capital rule due to the stress capital buffer or 

countercyclical capital buffer. 

30Covered entities are not subject to a buffer 

requirement corresponding to their leverage ratio or 

SLR requirement. 

31Under an MPOE strategy, multiple entities 

within a consolidated organization would enter 

separate resolution proceedings. For example, many 

covered entities plan that the parent holding 

company would file a petition under chapter 11 of 

the U.S. Bankruptcy Code, and that the FDIC would 

resolve the IDI subsidiary under the FDI Act. 

32 In an SPOE resolution, only the covered HC 

itself would enter resolution. In the case of a 

covered IHC, an SPOE resolution strategy for the 

U.S. operations of the covered IHC, where the 

parent FBO pursues a global MPOE strategy, 

involves only the covered IHC entering into 

resolution while its subsidiaries would continue to 

operate. The eligible external LTD issued by the 

covered IHC would be used to absorb losses 

incurred by the IHC and its operating subsidiaries, 

enabling the recapitalization of the operating 

subsidiaries that had incurred losses and allowing 

those subsidiaries—including any IDIs—to continue 

operating on a going-concern basis. SPOE is also an 

option for the resolution of a covered entity under 

the Orderly Liquidation Authority provisions of 

Title II of the Dodd-Frank Act. 

assets,26 3.5 percent of its average total 

consolidated assets,27 and 2.5 percent of 

its total leverage exposure if the covered 

entity is subject to the supplementary 

leverage ratio rule.28 A covered entity 

would be prohibited from redeeming or 

repurchasing eligible LTD prior to its 

stated maturity date without obtaining 

prior approval from the Board where the 

redemption or repurchase would cause 

the covered entity’s eligible LTD to fall 

below its LTD requirement. 

The proposed eligible LTD 

requirement was calibrated primarily on 

the basis of a ‘‘capital refill’’ framework. 

Under that framework, the objective of 

the LTD requirement is to ensure that 

each covered entity has a minimum 

amount of eligible LTD such that, if the 

covered entity’s going-concern capital is 

fully depleted and the covered entity 

fails and enters resolution, the eligible 

LTD would be sufficient to fully 

recapitalize the covered entity by 

replenishing its going-concern capital to 

at least the amount required to meet 

minimum leverage capital requirements 

and common equity tier 1 risk-based 

capital requirements plus the capital 

conservation buffer applicable to 

covered entities. 

In terms of risk-weighted assets, a 

covered entity’s common equity tier 1 

capital level is subject to a minimum 

requirement of 4.5 percent of riskweighted assets plus a capital 

conservation buffer equal to at least 2.5 

percent.29 Accordingly, a covered entity 

would be subject to an external LTD 

requirement equal to 7 percent of riskweighted assets minus a 1 percentage 

point allowance for balance sheet 

depletion. This results in a proposed 

LTD requirement equal to 6 percent of 

risk-weighted assets. The 1 percentage 

point allowance for balance sheet 

depletion is appropriate under the 

capital refill theory because the losses 

that the covered entity incurs leading to 

its failure would deplete its riskweighted assets as well as its capital. 

Accordingly, the pre-failure losses 

would result in a smaller balance sheet 

for the covered entity at the point of 

failure, meaning that a smaller dollar 

amount of capital would be required to 

restore the covered entity’s pre-stress 

common equity tier 1 capital level. 

Although the specific amount of eligible 

external LTD necessary to restore a 

covered entity to its minimum required 

common equity tier 1 capital level plus 

minimum buffer in light of the 

diminished size of its post-failure 

balance sheet will vary, applying a 

uniform 1 percentage point allowance 

for balance sheet depletion avoids 

undue regulatory complexity. 

The application of the capital refill 

framework to the leverage-based capital 

component of the LTD requirement is 

analogous. A covered entity’s tier 1 

leverage ratio minimum is 4 percent of 

average total consolidated assets and its 

supplementary leverage ratio minimum 

is 3 percent of total leverage exposure, 

if the covered entity is subject to the 

supplementary leverage ratio.30 Under 

the proposal, a covered entity would be 

subject to an LTD requirement equal to 

3.5 percent of average total consolidated 

assets and 2.5 percent of total leverage 

exposure, if applicable. These 

requirements, with a balance sheet 

depletion allowance of 0.5 percentage 

points, are appropriate to ensure that a 

covered entity has a sufficient amount 

of eligible LTD to refill its leverage ratio 

minimums in the event it depletes all or 

substantially all of its tier 1 capital prior 

to failing. 

The proposed eligible LTD 

requirement would support an MPOE 31

resolution through the process by which 

a covered IDI that is a consolidated 

subsidiary of a covered entity issues 

eligible LTD internally. The internallyissued LTD would be available to absorb 

losses that may otherwise be borne by 

uninsured depositors and certain other 

creditors of the subsidiary IDI in the 

event of its failure, thereby supporting 

market confidence in the safety of 

deposits even in the event of resolution, 

thus limiting the potential for bank 

runs. The proposed calibration would 

increase optionality for the FDIC as the 

LTD amount would be sufficient to 

capitalize a bridge depository institution 

and increase its marketability, leading to 

greater resale value. To the extent that 

a covered entity has several operating 

subsidiaries, their recapitalization 

would support their orderly wind down. 

In a single point of entry (SPOE) 32

resolution, the required LTD amount, in 

conjunction with a covered entity’s 

existing equity capital, should be able to 

absorb losses and support 

recapitalization of the failed covered 

entity’s material subsidiaries. 

The calibration of the eligible LTD 

requirement is based on the capital refill 

framework, which depends on the 

precise structure and calibration of bank 

capital requirements. The Board will 

continue to evaluate the LTD 

requirement in light of any changes to 

capital requirements over time. In 

addition, the proposed rule would 

reserve the authority for the Board to 

require a covered entity to maintain 

more, or allow a covered entity to 

maintain less, eligible LTD than the 

minimum amount required by the 

proposed rule under certain 

circumstances. This reservation of 

authority would ensure that the Board 

could require a covered entity to 

maintain additional LTD if the covered 

entity poses elevated risks that the 

proposed rule seeks to address. 

The proposed rule would also 

prohibit a covered entity from 

redeeming or repurchasing any 

outstanding eligible LTD without the 

prior approval of the Board if after the 

redemption or repurchase the covered 

entity would not meet its minimum LTD 

requirement. The proposed rule would 

allow a covered entity to redeem or 

repurchase its eligible LTD without 

prior approval where such redemption 

or repurchase would not result in the 

covered entity failing to comply with 

the minimum eligible LTD requirement. 

This would give the covered entity 

flexibility to manage its outstanding 

debt levels without interfering with the 

underlying purpose of the proposed 

rule. In addition, the proposed rule also 

includes a provision that would allow 

the Board, after providing a covered 

entity with notice and an opportunity to 

respond, to order the covered entity to 

exclude from its outstanding eligible 

LTD amount any otherwise eligible debt 

securities with features that would 

significantly impair the ability of such 


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33Section 263.83 of the Board’s rules of 

procedure describes the notice and response 

procedures that apply if the Board determines that 

a company’s capital levels are not adequate. See 12 

CFR 263.83. The Board would follow the same 

procedures under the proposed rule to determine 

that a covered entity must exclude from its eligible 

LTD amount securities with features that would 

significantly impair the ability of such debt 

securities to absorb loss in resolution. For example, 

the Board would provide notice to a covered entity 

of its intention to require the covered entity to 

exclude certain securities from its eligible LTD 

amount and up to 14 days to respond before the 

Board would issue a final notice requiring that the 

covered entity to exclude the securities from its 

eligible LTD amount, unless the Board determines 

that a shorter period is necessary. 

debt securities to absorb loss in 

resolution.33

In addition, the Board could take an 

enforcement action against a covered 

entity for falling below its minimum 

LTD requirement. This would be 

consistent with the Board’s authority to 

pursue enforcement actions for 

violations of law, rules, or regulations. 

Question 5: What alternative 

calibration, if any, should the Board 

consider for the eligible LTD 

requirement to be applied to covered 

entities? Is the capital refill framework 

the appropriate methodology for 

covered entities? Should the 

requirements be higher or lower? What 

other factors should the Board consider 

in determining the appropriate 

calibration? How should differences in a 

covered entity’s resolution strategy 

influence the calibration of the required 

LTD amount, if at all? Please discuss the 

advantages and disadvantages of 

alternative calibrations the Board 

should consider. 

Question 6: Should the Board 

consider increasing or decreasing the 

calibration of the eligible external LTD 

requirement applicable to covered 

entities based on any other factors, such 

as the level of uninsured deposits at 

their IDI subsidiaries? If so, how should 

the Board differentiate between different 

types of uninsured deposits (e.g., what 

features of one type of uninsured 

deposits make such deposits more 

stable than other types of uninsured 

deposits), if at all, and at what level of 

uninsured deposits should the Board 

increase or decrease calibration for the 

LTD requirement? What other 

differentiated consideration or 

treatment should be afforded uninsured 

deposits with these characteristics? 

Question 7: The proposal would 

require covered IDIs to issue LTD, as 

discussed more fully below. There may 

be circumstances in which IDIs within a 

single consolidated group might be 

required to issue, in the aggregate, a 

greater amount of internal LTD to a 

covered entity than the covered entity’s 

external LTD requirement. What would 

be the advantages or disadvantages of 

requiring the covered entity to issue an 

amount of LTD that is as large as the 

aggregate amount that its covered IDI 

subsidiaries are required to issue? What 

alternative approaches should the 

Board consider to address this 

circumstance? How might the absence 

of such a requirement impede the 

proposed LTD requirement in achieving 

its intended purposes, if at all? 

Question 8: The Board is considering 

whether and how to specify a period for 

covered entities to raise additional LTD 

after the entity has been involved in a 

situation where the FDIC has been 

appointed receiver. What are the 

advantages or disadvantages of 

permitting a period to raise additional 

LTD following such an event? How long 

should such a period reasonably be? 

Should the agencies specify a similar 

period for U.S. GSIBs and the U.S. IHCs 

of foreign GSIBs that are already subject 

to LTD and TLAC requirements? 

IV. LTD Requirement for Covered IDIs 

The proposed rule also would 

additionally create a new requirement 

for covered IDIs to issue eligible LTD. 

Requiring covered IDIs to maintain 

minimum amounts of eligible LTD, 

which would be available to absorb 

losses in the event of the failure of the 

IDI, would improve the FDIC’s 

resolution options for the covered IDI. 

The objective of the IDI-level LTD 

requirement is to ensure that, if a 

covered IDI’s equity capital is 

significantly or completely depleted and 

the covered IDI fails, the eligible IDI 

LTD would be available to absorb losses, 

which would help to protect depositors 

and certain other creditors and afford 

the FDIC additional optionality in 

resolving the IDI, including by 

supporting the transfer of all deposits to 

one or more acquirers. Where the failed 

bank is transferred to a bridge 

depository institution, the eligible LTD 

would help stabilize the operations of 

the bridge, thereby providing additional 

options for the FDIC to ultimately exit 

the bridge. 

Several commenters to the ANPR 

suggested that increasing bank 

regulatory capital levels would be a 

more effective way to improve 

resiliency of covered entities and 

covered IDIs because additional capital 

would reduce their probability of 

default in the first place. While higher 

regulatory capital levels would reduce 

the probability of default of a covered 

IDI and may increase the chance that a 

covered entity or covered IDI would 

have remaining equity in the event of its 

failure, regulatory capital is likely to be 

significantly or completely depleted in 

the lead up to an FDI Act resolution. 

While eligible LTD would not help a 

troubled IDI remain adequately 

capitalized on a going-concern basis, it 

would significantly reduce the 

likelihood of contagion and loss to the 

DIF in resolving the failed bank. For 

example, if in the lead up to resolution 

an IDI were to fall below its minimum 

tier 1 capital requirements, any eligible 

LTD outstanding at the IDI level would 

have significant gone-concern benefits 

in that it would help to recapitalize the 

IDI. Because eligible LTD of a covered 

IDI would be available to absorb losses 

and protect depositors in the event of 

the failure of the IDI, it would increase 

optionality for the FDIC in resolving the 

IDI while meeting the least-cost 

requirement of the FDI Act. By 

supporting the FDIC’s transfer of assets 

and deposits to a bridge depository 

institution in accordance with the leastcost requirement, eligible LTD may help 

preserve the franchise value of a failed 

bank and enable the FDIC to pursue 

restructuring options such as the sale of 

subsidiaries, branch networks, or 

business lines, as well as other potential 

options for divestiture and exit. 

A covered IDI that is a consolidated 

subsidiary of a covered entity would be 

required to issue its eligible LTD to a 

company in the United States that 

consolidates the IDI for accounting 

purposes. In practice, the proceeds 

raised by the issuance of eligible LTD by 

a covered entity would generally be 

‘‘downstreamed’’ to its covered IDI 

subsidiary in return for eligible internal 

LTD that would satisfy such covered 

IDI’s own eligible LTD requirement. A 

covered IDI that is not a controlled 

subsidiary of a parent entity would be 

required to issue its eligible LTD to a 

party that is not an affiliate of the 

covered IDI. A covered IDI that is a 

consolidated subsidiary of a further 

parent entity that is not a covered entity 

would be permitted to issue its eligible 

LTD to a parent that controls the 

covered IDI or to investors that are not 

affiliates. 

A. Scope of Application 

The proposed rule would require four 

categories of IDIs to issue eligible LTD. 

First, the proposed rule would apply to 

any IDI that has at least $100 billion in 

total consolidated assets and is not 

controlled by a parent entity (mandatory 

externally issuing IDI). Second, the 

proposed rule would apply to any IDI 

that has at least $100 billion in total 

consolidated assets and (i) is a 

consolidated subsidiary of a company 

that is not a covered entity, a U.S. GSIB 

or a foreign GSIB subject to the TLAC 


ddrumheller on DSK120RN23PROD with PROPOSALS2
64532 Federal Register / Vol. 88, No. 180 / Tuesday, September 19, 2023 / Proposed Rules 

34 IDIs with $100 billion or more in total assets 

that are subsidiaries of Category II, III, and IV U.S. 

IHCs would be subject to the IDI-level requirement 

regardless of whether they ultimately are controlled 

by a global systemically important FBO. 

35See 12 U.S.C. 1815(e). 

rule or (ii) is controlled but not 

consolidated by another company 

(permitted externally issuing IDI). 

Third, the proposed rule would apply to 

an IDI that has at least $100 billion in 

total consolidated assets and that is a 

consolidated subsidiary of a covered 

entity or a foreign GSIB IHC (internally 

issuing IDI).34 Lastly, the proposed rule 

would apply to any IDI that is affiliated 

with an IDI in one of the first three 

categories (together with mandatory and 

permitted externally issuing IDIs and 

internally issuing IDIs, covered IDIs). 

The agencies propose to apply the IDI 

LTD requirement based on an IDI’s size. 

While size is not the only indicator of 

complexity, it is a readily observable 

indicator, and, in general, IDIs with 

assets above $100 billion tend to be 

more complex in terms of their 

businesses and operations, are more 

difficult to resolve, and have a smaller 

pool of prospective acquirers. As IDIs 

cross the $100 billion threshold in total 

consolidated assets, their resolution can 

become increasingly costly to the DIF. 

Covered IDIs under the proposed rule 

would include IDIs affiliated with IDIs 

that have at least $100 billion in total 

consolidated assets because the FDIC 

may seek to resolve an IDI with at least 

$100 billion in assets and its affiliated 

IDIs using either the same bridge 

depository institution or multiple bridge 

depository institutions. When an IDI in 

a group fails, it is likely that all IDIs in 

the group fail due to interconnectedness 

and the statutory cross-guaranty 

imposed on affiliated IDIs in the event 

of the failure of an IDI in the group.35

In addition, affiliated IDIs may engage 

in complementary business activities, so 

placing them into a single bridge 

depository institution or coordinating 

marketing and resolution in multiple 

bridge depository institutions may 

improve marketability and attract a 

larger universe of potential acquirers. 

Therefore, the proposed rule would 

include affiliated IDIs in the definition 

of a covered IDI to help ensure that in 

the event the affiliated IDIs enter 

resolution together, a sufficient level of 

gone concern loss-absorbing resources 

will be present to enable the FDIC to use 

one or more bridge depository 

institutions to effectively resolve all of 

the affected covered IDIs. 

The proposed rule would apply to 

mandatory and permitted externally 

issuing IDIs for the reasons discussed 

above concerning the risks associated 

with IDIs that have at least $100 billion 

in total assets. The risks associated with 

the failure of a mandatory externally 

issuing IDI are not diminished because 

of the lack of a parent company and the 

risks associated with the failure of a 

permitted externally issuing IDI are not 

diminished because its parent is not 

subject to an LTD requirement. 

Mandatory and permitted externally 

issuing IDIs may not have the benefit of 

receiving the support of a holding 

company or being part of a regulated 

consolidated organization with 

diversified businesses. Applying the 

proposed rule to mandatory and 

permitted externally issuing IDIs in 

addition to those with a covered entity 

parent ensures competitive equality 

across all covered IDIs. 

Question 9: What risks or resolution 

challenges are presented by IDIs with 

less than $100 billion in total 

consolidated assets? In what way do 

those risks or resolution challenges 

differ from those presented by IDIs with 

at least $100 billion in total 

consolidated assets? 

Question 10: How should the agencies 

address any evasion concerns (e.g., 

holding companies managing their IDIs 

to stay below the $100 billion threshold 

to avoid the IDI LTD requirement)? 

What would be the advantages and 

disadvantages of setting the 

applicability threshold to be based on 

whether the total assets of the IDIs 

within a consolidated organization are, 

in the aggregate, at least $100 billion or 

more? 

Question 11: What would be the 

advantages and disadvantages of 

allowing certain IDIs currently defined 

as internally issuing IDIs (e.g., covered 

IDIs that are consolidated subsidiaries 

of Category IV holding companies) to 

issue debt externally, even if they are a 

consolidated subsidiary of a covered 

entity? If the agencies were to allow 

some IDIs that are consolidated 

subsidiaries of a covered entity to issue 

debt externally, how should the 

agencies determine which IDIs may 

issue externally, and which would still 

be required to issue internally? Should 

such a requirement replace the 

requirement that the parent covered 

entity also issue debt externally? 

Question 12: Are there special 

characteristics of mandatory externally 

issuing IDIs that affect whether a 

mandatory externally issuing IDI should 

be subject to a higher or lower LTD 

requirement than proposed? For 

example, should mandatory externally 

issuing IDIs be required to maintain an 

amount of LTD such that, if the IDI’s 

equity capital is fully depleted and the 

LTD is used to capitalize a bridge 

depository institution, the bridge would 

be well-capitalized under the agencies’ 

prompt corrective action rules? 

Question 13: What would be the 

advantages and disadvantages to 

requiring permitted externally issuing 

IDIs to meet their minimum LTD 

requirement by issuing only eligible 

internal debt securities or eligible 

external debt securities rather than any 

combination of both? What would be the 

advantages and disadvantages to 

requiring such a permitted externally 

issuing IDI to meet its minimum LTD 

requirement by issuing eligible external 

LTD only, rather than allowing issuance 

to a parent holding company or other 

affiliates? 

Question 14: Should the proposed 

rule require the holding company of a 

permitted externally issuing IDI that 

issues eligible LTD to its holding 

company to comply with the clean 

holding company requirements 

discussed in section VI? 

Question 15: Should the agencies take 

into consideration the resolution plan of 

a covered entity submitted pursuant to 

Title I of the Dodd-Frank Act in 

determining which IDIs to scope into the 

proposed rule? For example, should the 

proposed IDI-level LTD requirement 

only apply to IDI subsidiaries of covered 

entities that have adopted an MPOE 

resolution strategy (i.e., (i) IDIs that are 

expected by the parent resolution plan 

filer to enter into receivership if its 

parent fails and (ii) where the Board 

and FDIC find that expectation to be 

reasonable)? What would be the 

advantages and disadvantages and 

potential incentive effects of applying 

an IDI-level LTD requirement to IDIs 

that are subsidiaries of covered entities 

that have adopted an SPOE resolution 

strategy? Certain covered IDIs are not 

subsidiaries of entities subject to a 

resolution planning requirement. Are 

there alternative approaches that might 

provide beneficial additional flexibility 

for these covered IDIs? 

Question 16: What other methods 

could the agencies use to achieve the 

same benefits provided by the proposed 

rule concerning certainty of the ultimate 

availability of LTD resources at an IDI 

that ultimately enters resolution? Are 

there alternative approaches that might 

provide beneficial additional flexibility 

for covered entities in an SPOE 

resolution? What factors, such as the 

size and significance of non-bank 

activities, should the agencies consider 

in determining whether any such 

alternative approaches or additional 

requirements are appropriate? 

Question 17: What would be the 

advantages and disadvantages of 

requiring IDI subsidiaries of U.S. GSIBs 


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Federal Register / Vol. 88, No. 180 / Tuesday, September 19, 2023 / Proposed Rules 64533 

36For purposes of the LTD minimum 

requirement, average total consolidated assets is 

defined as the denominator of the agencies’ tier 1 

leverage ratio requirement. See 12 CFR 3.10(b)(4) 

(OCC), 12 CFR 217.10(b)(4) (Board), 12 CFR 

324.10(b)(4) (FDIC). 

37See 12 CFR 3.10(c)(2) (OCC), 12 CFR 

217.10(c)(2) (Board), 12 CFR 324.10(c)(2) (FDIC). 

38For example, in an SPOE resolution, if the 

covered IDI is a consolidated subsidiary of a 

covered entity, the covered entity could support the 

covered IDI by forgiving the eligible internal LTD 

issued by the covered IDI. 

39See 12 CFR 3.404 (OCC), 12 CFR 263.83 

(Board), and 12 CFR 324.5(c) (FDIC). 

to issue specified minimum amounts 

internal LTD? Should the agencies 

propose applying the same IDI-level 

requirements to these entities? 

Question 18: For U.S. intermediate 

holding companies that are subject to 

the Board’s TLAC rule, to what extent 

does the existing LTD requirement 

applicable at the IHC level already 

address the considerations underlying 

the proposed imposition of a further 

LTD requirement on any covered IDI 

subsidiary of such an IHC? For example, 

what would be the advantages or 

disadvantages of changing the proposal 

so that it would not require covered IDIs 

that are consolidated subsidiaries of 

IHCs owned by foreign GSIBs to issue 

internal LTD to the IHC? 

Question 19: What are the advantages 

and disadvantages of requiring IDIs 

affiliated with IDIs that have at least 

$100 billion in consolidated assets to 

issue LTD pursuant to the proposed 

rule? What standard should be used for 

determining whether an IDI is an 

affiliate of a covered IDI? For example, 

should the IDI be treated as an affiliate 

of a covered IDI only if it is consolidated 

by the same company as the covered 

IDI? Should two IDIs be treated as 

affiliates only if they are under the 

common control of a company (as 

opposed to a natural person)? What are 

the advantages and disadvantages of 

making subject to the proposed rule all 

affiliated IDIs as compared to only those 

that are consolidated by the same 

company as the covered IDI? 

Question 20: Under the proposal, an 

IDI with less than $100 billion in total 

consolidated assets would be subject to 

the proposed rule if it is affiliated with 

an IDI that has at least $100 billion in 

total assets, including when the two IDIs 

are not consolidated by the same 

holding company or the two IDIs are 

commonly controlled by a natural 

person. Should the proposed rule 

include a minimum size requirement for 

such an affiliated IDI to be subject to the 

proposed rule? For example, should 

only affiliated IDIs with at least an 

amount of assets set between $1 billion 

and $50 billion be subject to the 

proposed rule? What would be an 

appropriate threshold, or are there other 

parameters the proposed rule should 

employ to establish when an affiliated 

IDI would be subject to the proposed 

rule? As an alternative to an asset size 

threshold or other parameter, should the 

agencies consider reserving the 

authority to exempt certain IDIs from 

the LTD requirement? 

B. Calibration of Covered IDI LTD 

Requirement 

Under the proposal, a covered IDI 

would be required to maintain 

outstanding eligible LTD in an amount 

that is the greater of 6.0 percent of the 

covered IDI’s total risk-weighted assets, 

3.5 percent of its average total 

consolidated assets,36 and 2.5 percent of 

its total leverage exposure if the covered 

IDI is subject to the supplementary 

leverage ratio.37

The proposed IDI LTD requirement is 

calibrated by reference to the covered 

IDI’s balance sheet and to ensure that 

sufficient LTD would be available at the 

covered IDI. The IDI LTD requirement is 

also calibrated to help ensure that the 

resolution of a covered IDI does not 

impose unduly high costs on the 

economy. 

The proposed IDI LTD requirement 

has been calibrated so that, assuming a 

failed covered IDI’s equity capital is 

significantly or completely depleted, the 

eligible LTD outstanding would be 

sufficient to capitalize a newly-formed 

bridge depository institution with an 

amount necessary to comply with the 

minimum leverage capital requirements 

and common equity tier 1 risk-based 

capital requirements plus buffers 

applicable to ordinary non-bridge IDIs 

after accounting for some balance sheet 

depletion. 

The proposed calibration would 

appropriately support the FDIC in 

resolving covered IDIs under the FDI 

Act because the eligible LTD at the IDI 

could improve market confidence, 

improve the marketability of the failed 

IDI, and stabilize the bridge depository 

institution, thereby providing more 

optionality in resolution. Importantly, it 

could also provide for an exit from 

resolution by enabling a recapitalized 

bridge depository institution to exit 

from resolution as a newly chartered IDI 

following a period of stabilization and 

restructuring. 

The amount of LTD required to be 

positioned at the covered IDI is based 

upon the balance sheet of the covered 

IDI and will reflect the size and 

importance of the covered IDI relative to 

the group. Thus, it improves the 

optionality of resolution at an IDI level 

while also potentially supporting an 

SPOE resolution of the covered entity in 

the event that option is available and 

would be effective.38 Externally issuing 

IDIs would be subject to the same 

calibration as other covered IDIs, as they 

can have similar risk profiles, asset 

compositions, and liability structures as 

other covered IDIs and hence should 

have similar resolution-related resource 

needs. 

The proposed rule would authorize an 

agency to require a covered IDI that it 

supervises to maintain an amount of 

eligible LTD that is greater than the 

minimum requirement in the proposed 

rule under certain circumstances. This 

would ensure that a covered IDI that 

presents elevated risk that the proposed 

rule seeks to address would be required 

to maintain a corresponding amount of 

eligible LTD. 

The proposed rule would include a 

provision that would allow the 

appropriate Federal banking agency, 

after providing a covered IDI with notice 

and an opportunity to respond, to order 

the covered IDI to exclude from its 

outstanding eligible LTD any otherwise 

eligible debt securities with features that 

would significantly impair the ability of 

such debt securities to absorb losses in 

resolution.39

In addition, the appropriate Federal 

banking agency could take an 

enforcement action against a covered IDI 

for falling below a minimum IDI LTD 

requirement. This would be consistent 

with the agencies’ authority to pursue 

enforcement actions for violations of 

law, rules, or regulations. 

Question 21: What alternative 

calibrations should the agencies 

consider for the IDI LTD requirement? 

What other factors should the agencies 

consider in determining the appropriate 

calibration? The proposed rule would 

require covered IDIs to maintain an 

amount of LTD so that, if the LTD were 

written off, it would recapitalize a 

covered IDI to the well capitalized 

standards for IDIs under the common 

equity tier 1 risk-based capital 

requirements (after accounting for 

expected balance sheet depletion). What 

would be the advantages and 

disadvantages of requiring a covered IDI 

to maintain an amount of LTD that 

would be sufficient to recapitalize the 

covered IDI to ‘‘well-capitalized’’ 

standards relative to (1) tier-1 risk-based 

capital requirements, (2) total risk-based 

capital requirements, and (3) average 

total consolidated assets under the 


ddrumheller on DSK120RN23PROD with PROPOSALS2
64534 Federal Register / Vol. 88, No. 180 / Tuesday, September 19, 2023 / Proposed Rules 

40See 12 CFR 252.61 and .161 ‘‘Eligible debt 

security.’’ 

41 If a national bank or Federal savings association 

intends for LTD to qualify as tier 2 capital, the 

instrument must also satisfy the requirements for 

subordinated debt at 12 CFR 5.47 (for national 

banks) and 12 CFR 5.56 (for Federal savings 

associations). If the national bank or Federal savings 

association does not intend to treat the LTD as 

subordinated debt that qualifies as tier 2 capital, the 

LTD does not need to satisfy these requirements. In 

any event, all offers and sales of securities by a 

national bank or Federal savings association are 

subject to the disclosure requirements set forth at 

12 CFR part 16. 

42The Board would exercise this authority with 

respect to covered entities. For covered IDIs, a 

bank’s primary Federal banking agency would 

exercise this authority. 

agencies’ prompt corrective action 

standards in the event of failure? 

Question 22: What would be the 

advantages and disadvantages of 

proposing a different calibration for 

mandatory and permitted externally 

issuing IDIs, which do not have a parent 

holding company that is subject to an 

external LTD requirement? 

Question 23: How should the 

calibration for the IDI LTD requirement 

relate, if at all, to the level of uninsured 

deposits outstanding at a covered IDI, 

either in absolute terms or relative to the 

IDI’s liabilities? If such an approach 

were taken, at what level(s) of uninsured 

deposits should the agencies modify the 

calibration for the IDI LTD requirement? 

Question 24: The agencies are 

considering whether and how to specify 

a period for covered IDIs to raise 

additional LTD after the entity has been 

involved in a situation in which the 

FDIC has been appointed receiver. What 

are the advantages or disadvantages of 

permitting a period for the covered IDI 

to raise additional LTD following such 

an event? How long should such a 

period reasonably be? 

V. Features of Eligible LTD 

The proposal would require LTD to 

satisfy certain eligibility criteria to 

qualify as eligible LTD. Although the 

requirements for all eligible LTD 

generally would be the same under the 

proposed rule, eligible external LTD 

would have certain features not 

applicable to eligible LTD issued within 

a consolidated organization (eligible 

internal LTD). As discussed above, 

covered HCs and mandatory externally 

issuing IDIs may only issue eligible 

external LTD to satisfy the proposed 

LTD requirement. Internally issuing IDIs 

and nonresolution covered IHCs must 

issue eligible internal LTD, while 

permitted externally issuing IDIs and 

resolution covered IHCs may issue 

either (see section V, subsection C for 

discussion of nonresolution and 

resolution covered IHCs). The general 

purpose of these requirements is to 

ensure that LTD used to satisfy the 

proposed rule is in fact able to be used 

effectively and appropriately to absorb 

losses in support of the orderly 

resolution of the issuer. The proposed 

requirements for eligible LTD are 

generally the same as those required for 

firms subject to the TLAC rule.40

Question 25: What are the advantages 

and disadvantages of limiting the types 

of instruments that qualify as eligible 

LTD? Would any of the proposed 

required features for eligible LTD be 

unnecessary or counterproductive as 

applied to any of the covered entities or 

covered IDIs? If so, explain why. 

A. Eligible External LTD 

Under the proposed rule, eligible 

external LTD issued by covered HCs, 

mandatory and permitted externally 

issuing IDIs, and resolution covered 

IHCs (together, external issuers) must be 

paid in and issued directly by the 

external issuer, be unsecured, have a 

maturity of greater than one year from 

the date of issuance, have ‘‘plain 

vanilla’’ features (that is, the debt 

instrument has no features that would 

interfere with a smooth resolution 

proceeding), be issued in a minimum 

denomination of $400,000, and be 

governed by U.S. law.41 In addition, 

principal due to be paid on eligible 

external LTD in one year or more and 

less than two years would be subject to 

a 50 percent haircut for purposes of the 

external LTD requirement. Principal due 

to be paid on eligible external LTD in 

less than one year would not count 

toward the external LTD requirement. 

Tier 2 capital that meets the definition 

of eligible external LTD would continue 

to count toward the external LTD 

requirement. 

Consistent with this purpose, the 

proposed rule would authorize the 

agencies, after providing an external 

issuer with notice and an opportunity to 

respond, to order the external issuer to 

exclude from its outstanding LTD 

amount any otherwise eligible debt 

securities with features that would 

significantly impair the ability of such 

debt securities to absorb losses in 

resolution.42 This provision would 

enable the agencies to respond to new 

types of LTD instruments, ensuring the 

proposed rule remains responsive to 

developments in LTD instruments. 

1. External Debt Issuance Directly by 

Covered Entities and Covered IDIs 

Eligible external LTD would be 

required to be paid in and issued 

directly by the external issuer. Thus, 

debt instruments issued by a subsidiary 

of a covered entity or covered IDI would 

not qualify as eligible external LTD. 

The requirement that eligible external 

LTD be issued directly by the covered 

entity or covered IDI and not a 

subsidiary would serve several 

purposes. In the case of eligible external 

LTD issued by a covered entity that is 

in turn matched by eligible internal LTD 

at a covered IDI subsidiary, the 

requirement would make sure that the 

covered entity has an amount of stable 

funding that is sourced externally and 

that could be used to purchase the LTD 

issued by the covered IDI subsidiary to 

meet the IDI’s minimum LTD 

requirement. 

Additionally, requiring eligible 

external LTD to be issued by the 

covered entity (or, in the case of a 

permitted or mandatory externally 

issuing IDI, the covered IDI) and not a 

subsidiary would simplify 

administration of the proposed rule by 

preventing a banking organization from 

issuing external LTD from multiple 

entities, which could complicate the 

firm’s internal monitoring and examiner 

monitoring for compliance with the 

proposed rule. This requirement also 

would take advantage of the fact that, 

within a consolidated organization, the 

holding company generally is the entity 

used as a capital raising vehicle. 

Finally, for external issuers that are 

covered entities, issuance directly from 

the covered entity and not a subsidiary 

would provide flexibility to support a 

range of resolution strategies. For 

instance, use by an external issuer (such 

as a covered HC) of proceeds from the 

issuance of eligible external LTD to 

purchase eligible internal LTD from a 

covered IDI subsidiary would support 

resolution of the covered IDI under the 

FDI Act. Where SPOE is an available 

option, the issuer’s eligible external LTD 

could be used to absorb losses incurred 

throughout the banking organization, 

enabling the recapitalization of 

operating subsidiaries that had incurred 

losses and enabling those subsidiaries to 

continue operating on a going-concern 

basis. For an SPOE approach to be 

implemented successfully, the eligible 

external LTD must be issued directly by 

the covered entity because debt issued 

by a subsidiary generally cannot be used 

to absorb losses, even at the issuing 

subsidiary itself, unless that subsidiary 

enters a resolution proceeding. 

Eligible external LTD also may only 

be held by certain investors. In the case 

of covered entities, eligible external LTD 

must be held by a nonaffiliate. The 

requirement for eligible external LTD to 

not be held by an affiliate ensures that 

LTD issuance generates new lossabsorbing capacity that is truly held 


ddrumheller on DSK120RN23PROD with PROPOSALS2
Federal Register / Vol. 88, No. 180 / Tuesday, September 19, 2023 / Proposed Rules 64535 

43This limitation would be subject to an 

exception that would permit eligible external LTD 

instruments to give the holder a future put right as 

of a date certain, subject to the provisions discussed 

below regarding when the debt is due to be paid. 

44Assets would include loans, debt securities, 

and other financial instruments. 

45U.S. Securities and Exchange Commission, 

Structured Notes with Principal Protection: Note 

the Terms of Your Investment (June 1, 2011), 

https://www.sec.gov/investor/alerts/ 

structurednotes.htm. 

externally from the issuer. This 

requirement also helps ensure that LTD 

holders are positioned to serve as a 

source of market discipline for the 

external issuer. LTD holders may be less 

likely to critically monitor the 

performance of the issuer if the holders 

are affiliated with the issuer. Eligible 

external LTD issued by a permitted or 

mandatory externally issuing IDI 

likewise could not be issued to an 

affiliate, except an affiliate that controls 

but does not consolidate the covered IDI 

(e.g., where a company owns at least 25 

percent of, but does not meet the 

accounting standard to consolidate, a 

covered IDI). Without this exception for 

upstream affiliates, eligible LTD of a 

permitted externally issuing IDI could 

be held by a company that consolidates 

the covered IDI (in the form of eligible 

internal LTD), but not a company that 

controls without consolidating the 

covered IDI. Such a prohibition would 

serve no purpose. Accordingly, the 

proposal permits a permitted or 

mandatory externally issuing IDI to 

issue eligible external LTD to such an 

affiliate. 

2. Unsecured 

Eligible external LTD would be 

required to be unsecured, not 

guaranteed by the external issuer or a 

subsidiary or an affiliate of the external 

issuer, and not subject to any other 

arrangement that legally or 

economically enhances the seniority of 

the instrument (such as a credit 

enhancement provided by an affiliate). 

The primary rationale for these 

restrictions is to ensure that eligible 

external LTD can serve its intended 

purpose of absorbing losses incurred by 

the banking organization in resolution. 

To the extent that a creditor is secured, 

or provided with credit support of any 

type, it can avoid suffering losses by 

seizing the collateral that secures the 

debt. The debt being secured would 

thwart the purpose of eligible external 

LTD by leaving losses with the external 

issuer (which would lose the collateral) 

rather than imposing them on the 

eligible external LTD creditor (which 

could take the collateral). As a result, 

this requirement ensures that losses can 

be imposed on eligible LTD in 

resolution in accordance with the 

standard creditor hierarchy under 

bankruptcy or an FDI Act resolution, 

under which secured creditors are paid 

ahead of unsecured creditors. 

A secondary purpose of these 

restrictions is to prevent eligible 

external LTD from contributing to the 

asset fire sales that can occur when a 

financial institution fails and its secured 

creditors seize and liquidate collateral. 

Asset fire sales can drive down the 

value of the assets being sold, which can 

undermine financial stability by 

transmitting financial stress from the 

failed firm to other entities that hold 

similar assets. 

3.‘‘Plain Vanilla’’ 

Eligible external LTD instruments 

would be required to be ‘‘plain vanilla’’ 

instruments. Exotic features could 

create complexity and thereby diminish 

the prospects for an orderly resolution 

of the external issuer. These limitations 

would help to ensure that eligible 

external LTD represents loss-absorbing 

capacity with a definite value that can 

be quickly determined in resolution. In 

a resolution proceeding, claims 

represented by such ‘‘plain vanilla’’ 

debt instruments are more easily 

ascertainable and relatively certain 

compared to more complex and volatile 

instruments. Permitting exotic features 

could engender uncertainty as to the 

level of the issuer’s loss-absorbing 

capacity and could increase the 

complexity of the resolution proceeding 

and potentially result in a disorderly 

resolution. 

Under the proposed rule, external 

LTD instruments would be excluded 

from treatment as eligible external LTD 

if they: (i) are structured notes; (ii) have 

a credit-sensitive feature; (iii) include a 

contractual provision for conversion 

into or exchange for equity in the issuer; 

or (iv) include a provision that gives the 

holder a contractual right to accelerate 

payment (including automatic 

acceleration), other than a right that is 

exercisable (1) on one or more dates 

specified in the instrument, (2) in the 

event of the issuer entering into 

insolvency or resolution proceedings, or 

(3) the issuer’s failure to make a 

payment on the instrument when due 

that continues for 30 days or more.43

a. Structured Notes 

The proposed rule would exclude 

structured notes, including principalprotected structured notes, from 

treatment as eligible external LTD. 

Structured notes contain features that 

could make their valuation uncertain, 

volatile, or unduly complex. In 

addition, they are often liabilities held 

by retail investors (as opposed to 

institutional investors) and, as 

discussed in greater detail below in the 

context of minimum denomination 

requirements, holdings of LTD by more 

sophisticated investors can better ensure 

that LTD holders understand the risks of 

LTD and that such holders are in a 

position to provide market discipline 

with respect to LTD issuers. To promote 

resiliency and market discipline, it is 

important that external issuers maintain 

a minimum amount of loss-absorbing 

capacity with a value that is easily 

ascertainable at any given time. 

Moreover, in resolution, debt 

instruments that will be subjected to 

losses must be capable of being valued 

accurately and with minimal risk of 

dispute. The requirement that eligible 

external LTD not contain the features 

associated with structured notes 

advances these goals. 

For purposes of the proposed rule, a 

‘‘structured note’’ is defined as a debt 

instrument that: (i) has a principal 

amount, redemption amount, or stated 

maturity that is subject to reduction 

based on the performance of any asset,44

entity, index, or embedded derivative or 

similar embedded feature; (ii) has an 

embedded derivative or similar 

embedded feature that is linked to one 

or more equity securities, commodities, 

assets, or entities; (iii) does not have a 

minimum principal amount that 

becomes due and payable upon 

acceleration or early termination; or (iv) 

is not classified as debt under U.S. 

GAAP. The definition of a structured 

note does not include a non-dollardenominated instrument or an 

instrument whose interest payments are 

based on an interest rate index (for 

example, a floating-rate note linked to 

the Federal funds rate or to the secured 

overnight financing rate), in each case 

that satisfies the proposed requirements 

in all other respects. 

Structured notes with principal 

protection often combine a zero-coupon 

bond, which pays no interest until the 

bond matures, with an option or other 

derivative product, whose payoff is 

linked to an underlying asset, index, or 

benchmark.45 For external issuances by 

covered entities, the derivative feature 

violates the intent of the clean holding 

company requirements (described 

below), which prohibit derivatives 

entered into by covered entities with 

third parties. Moreover, investors in 

structured notes tend to pay less 

attention to issuer credit risk than 

investors in other LTD, because 

structured note investors use structured 

notes to gain exposure unrelated to the 


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46For the avoidance of doubt, this provision 

should not be construed to mean that eligible 

external LTD could be accelerated upon an IDI 

merely being insolvent. 

47This requirement also accords with market 

convention, which generally defines ‘‘long-term 

debt’’ as debt with maturity in excess of one year. 

market discipline objective of the 

minimum LTD requirements. 

b. Contractual Provision for Conversion 

Into or Exchange for Equity 

The proposed rule would exclude 

from treatment as eligible external LTD 

debt that includes contractual 

provisions for its conversion into equity 

or for it to be exchanged for equity. The 

fundamental objective of the external 

LTD requirement is to ensure that 

external issuers will have a minimum 

amount of loss-absorbing capacity 

available to absorb losses upon the 

issuer’s entry into resolution. Debt 

instruments that could convert into 

equity prior to resolution may not serve 

this goal, since the conversion would 

reduce the amount of debt that will be 

available to absorb losses in resolution. 

In addition, debt with features to allow 

conversion into equity is often complex 

and thus may not be characterized as 

‘‘plain vanilla.’’ Convertible debt 

instruments may be viewed as debt 

instruments with an embedded equity 

call option. The embedded equity call 

option introduces a derivative-linked 

feature to the debt instrument that is 

inconsistent with the purpose of the 

clean holding company requirements 

(described below) and introduces 

uncertainty and complexity into the 

value of such securities. For these 

reasons, eligible external LTD may not 

include contractual provisions allowing 

for its conversion into equity or for it to 

be exchanged for equity prior to the 

issuer’s resolution under the proposed 

rule. 

c. Credit-Sensitive Features and 

Acceleration Clauses 

Under the proposal, eligible external 

LTD cannot have a credit-sensitive 

feature or provide the holder of the 

instrument a contractual right to the 

acceleration of payment of principal or 

interest at any time prior to the 

instrument’s stated maturity (an 

acceleration clause), other than upon 

the occurrence of either a receivership, 

liquidation, or similar proceeding,46 or 

a payment default event. However, 

eligible external LTD instruments would 

be permitted to give the holder a put 

right as of a future date certain, subject 

to the remaining maturity provisions 

discussed below. 

The restriction on acceleration clauses 

serves the same purpose as several of 

the other restrictions discussed above, 

i.e., to ensure that the required amount 

of LTD will indeed be available to 

absorb losses in resolution. Early 

acceleration clauses, including crossacceleration clauses, could undermine 

an orderly resolution by forcing the 

issuer to make payment on the full 

value of the debt prior to the entry of the 

issuer into resolution, potentially 

depleting the issuer’s eligible external 

LTD immediately prior to resolution. 

This concern does not apply to 

acceleration clauses that are triggered by 

an insolvency or resolution event, 

however, because the insolvency or 

resolution that triggers the clause would 

generally occur concurrently with the 

issuer’s entry into an insolvency or a 

resolution proceeding. 

Senior debt instruments issued by 

external issuers commonly also include 

payment default event clauses. These 

clauses provide the holder with a 

contractual right to accelerate payment 

upon the occurrence of a ‘‘payment 

default event’’—that is, a failure by the 

issuer to make a required payment when 

due. Payment default event clauses, 

which are not permitted in tier 2 

regulatory capital, raise more concerns 

than insolvency or resolution event 

clauses because a payment default event 

may occur (triggering acceleration) 

before the institution has entered a 

resolution proceeding and a stay has 

been imposed. Such a pre-resolution 

payment default event could cause a 

decline in the issuer’s loss-absorbing 

capacity. 

Nonetheless, the proposed rule would 

permit eligible external LTD to be 

subject to payment default event 

acceleration rights for two reasons. First, 

default or acceleration rights upon a 

borrower’s default on its direct payment 

obligations are a standard feature of 

senior debt instruments, such that a 

prohibition on such rights could be 

unduly disruptive to the potential 

market for eligible external LTD. 

Second, the payment default of an 

issuer on an eligible external LTD 

instrument would likely be a credit 

event of such significance that whatever 

diminished capacity led to the payment 

default event would also be a sufficient 

trigger for an insolvency or a resolution 

event acceleration clause, in which case 

a prohibition on payment default event 

acceleration clauses would have little or 

no practical effect. 

In addition, the proposed rule would 

provide that an acceleration clause 

relating to a failure to pay principal or 

interest must include a ‘‘cure period’’ of 

at least 30 days. During this cure period, 

the issuer could make payment on the 

eligible external LTD before such debt 

could be accelerated and if the issuer 

satisfies its obligations on the eligible 

external LTD within the cure period, the 

instrument could not be accelerated. 

This would ensure that an accidental or 

temporary failure to pay principal or 

interest does not trigger immediate 

acceleration. Moreover, this cure period 

for interest payments is found in many 

existing debt instruments and is 

consistent with current market practice. 

4. Minimum Remaining Maturity and 

Amortization 

Under the proposal, the amount of 

eligible external LTD that is due to be 

paid between one and two years would 

be subject to a 50 percent haircut for 

purposes of the external LTD 

requirement, and the amount of eligible 

external LTD that is due to be paid in 

less than one year would not count 

toward the external LTD requirement. 

The purpose of these restrictions is to 

limit rollover risk of debt instruments 

that qualify as eligible external LTD and 

ensure that eligible external LTD 

provides stable funding and will be 

reliably available to absorb losses in the 

event that the issuer fails and enters 

resolution. Debt that is due to be paid 

in less than one year does not 

adequately serve these purposes because 

of the possibility that the debt could 

mature during the period between the 

time when the issuer begins to 

experience extreme stress and the time 

when it enters a resolution proceeding. 

If the debt matures during that period, 

then it would be likely that the creditors 

would be unwilling to maintain their 

exposure to the issuer and would 

therefore refuse to roll over the debt or 

extend new credit, and the distressed 

issuer would likely be unable to replace 

the debt with new LTD that would be 

available to absorb losses in resolution. 

This run-off dynamic could result in a 

case where the covered entity enters 

resolution with materially less lossabsorbing capacity than would be 

required to support or recapitalize its 

IDIs or other subsidiaries, potentially 

resulting in a disorderly resolution. To 

protect against this outcome, eligible 

external LTD would cease to count 

toward the external LTD requirement 

upon being due to be paid in less than 

one year, so that the full required 

amount of loss-absorbing capacity 

would be available in resolution even if 

the resolution period were preceded by 

a year-long stress period.47

For the same reasons, eligible external 

LTD that is due to be paid in less than 

two years but greater than or equal to 

one year is subject to a 50 percent 

haircut under the proposed rule for 


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48The date on which principal is due to be paid 

would be calculated from the date the put right 

would first be exercisable regardless of whether the 

put right would be exercisable on that date only if 

another event occurred (e.g., a credit rating 

downgrade). 49Consistent with the definition of ‘‘State’’ in the 

TLAC rule and the Board’s Regulation YY, ‘‘State’’ 

would be defined to mean ‘‘any state, 

commonwealth, territory, or possession of the 

United States, the District of Columbia, the 

Commonwealth of Puerto Rico, the Commonwealth 

of the Northern Mariana Islands, American Samoa, 

Guam, or the United States Virgin Islands.’’ See 12 

CFR 252.2. 

50The Board also is proposing to introduce an 

identical requirement for external LTD issued 

pursuant to the TLAC rule, as discussed in Section 

IX.B below. 

51Board of Governors of the Federal Reserve 

System, Changes in U.S. Family Finances from 2016 

to 2019: Evidence from the Survey of Consumer 

Finances (Sept. 2020), https://

www.federalreserve.gov/publications/files/ 

scf20.pdf. This number reflects households that 

have at least one bond. In this context, ‘‘bonds’’ 

include only those held directly (not part of a 

managed investment account or bond fund) and 

include corporate and mortgage-backed bonds; 

Federal, state, and local government bonds; and 

foreign bonds. Id. 

52 Id. 

53 Id. 

purposes of the external LTD 

requirement, meaning that only 50 

percent of the value of its principal 

amount would count toward the 

external LTD requirement. This 

amortization provision is intended to 

protect an issuer’s loss-absorbing 

capacity against a run-off period in 

excess of one year (as might occur 

during a financial crisis or other 

protracted stress period) in two ways. 

First, it requires issuers that rely on 

eligible external LTD that is vulnerable 

to such a run-off period (because it is 

due to be paid in less than two years) 

to maintain additional loss-absorbing 

capacity in the form of eligible external 

LTD. Second, it leads issuers to reduce 

or eliminate their reliance on lossabsorbing capacity that is due to be paid 

in less than two years. An issuer could 

reduce its reliance on eligible external 

LTD that is due to be paid in less than 

two years by staggering its issuance, by 

issuing eligible external LTD that is due 

to be paid after a longer period, or by 

redeeming and replacing eligible 

external LTD once the residual maturity 

falls below two years. 

The proposed rule also provides 

similar treatment for eligible external 

LTD that could become subject to a 

‘‘put’’ right—that is, a right of the holder 

to require the issuer to redeem the debt 

on demand—prior to reaching its stated 

maturity. Such an instrument would be 

treated as if it were due to be paid on 

the day on which it first became subject 

to the put right, since on that day the 

creditor would be capable of demanding 

payment and thereby subtracting the 

value of the instrument from the issuer’s 

loss-absorbing capacity.48

5. Governing Law 

Eligible external LTD instruments 

would be required to consist only of 

liabilities that can be effectively used to 

absorb losses during the resolution of 

the external issuer without giving rise to 

material risk of successful legal 

challenge. To this end, the proposal 

would require eligible external LTD to 

be governed by the laws of the United 

States or any State.49 LTD that is subject 

to foreign law would potentially be 

subject to legal challenge in a foreign 

jurisdiction, which could jeopardize the 

orderly resolution of the issuer. Foreign 

courts might not defer to actions of U.S. 

courts or U.S. resolution authorities that 

would impair the eligible LTD, for 

example, where such actions negatively 

impact foreign bondholders or foreign 

shareholders. While the presence of 

recognition regimes abroad does 

improve the likelihood that these 

actions would be enforced, it does not 

guarantee it. 

6. Minimum Denomination and Investor 

Limitations 

The proposed rule also would require 

eligible external LTD to be issued 

through instruments with minimum 

principal denominations and would 

exclude from eligible external LTD 

instruments that can be exchanged by 

the holder for smaller denominations.50

The purpose of this requirement is to 

limit direct investment in eligible LTD 

by retail investors. Significant holdings 

of LTD by retail investors may create a 

disincentive to impose losses on LTD 

holders, which runs contrary to the 

agencies’ intention that LTD holders 

expect to absorb losses in resolution 

after equity shareholders. Imposing 

requirements that will tend to limit 

investments in LTD to more 

sophisticated investors will help ensure 

that LTD holders will monitor the 

performance of the issuer and thus 

support market discipline. These more 

sophisticated investors are more likely 

to appreciate that LTD that satisfies the 

requirements of the proposed rule may 

present different risks than other types 

of debt instruments issued by covered 

entities, covered IDIs, or other firms. 

The agencies propose setting the 

minimum denomination requirement at 

$400,000. A required minimum 

denomination of $400,000 would fall in 

the range of reasonable minimum 

denomination levels described below 

and would generally disincentivize 

direct holdings of such investments by 

retail investors without preventing 

institutional investors from purchasing 

eligible external LTD. In the agencies’ 

experience, most institutional investors 

are able to purchase instruments in 

minimum denominations of $400,000. 

In addition, according to the 2019 

Survey of Consumer Finances, the 

median value of the total portfolio of 

directly-held bonds for households that 

had at least one bond and had 

household incomes in the 90th to 100th 

percentiles was $400,000.51 Setting the 

minimum denomination at this level 

would likely substantially limit the 

amount of households that would 

directly invest in eligible LTD. 

The agencies considered alternative 

minimum denomination thresholds 

between $100,000 and $1 million. There 

are several arguments to support the 

reasonableness of a minimum 

denomination requirement at thresholds 

between $100,000 and $1 million. 

Setting the minimum denomination at 

$100,000 would likely result in well 

over half of retail investors not 

participating in the market for direct 

purchases of eligible LTD, which would 

meaningfully accomplish the agencies’ 

goal of generally reducing the degree of 

direct retail investor holdings of eligible 

LTD. According to the Survey of 

Consumer Finances, the median value 

of the total portfolio of directly-held 

bonds for households that had at least 

one bond in 2019 was $121,000.52 If 

eligible LTD is issued in minimum 

denominations of $100,000, it would be 

possible but unlikely that a household 

that directly holds an aggregate amount 

of individual bonds equal to this 

$121,000 figure would include within 

such holdings any eligible LTD 

instruments because, in that case, the 

minimum denomination associated with 

the eligible LTD instrument would 

cause such instrument to represent 

nearly the entirety of such bond 

holdings. A minimum denomination 

requirement of $1 million could 

therefore also be reasonable. As noted 

above, the 2019 Survey of Consumer 

Finances found that the median value of 

the aggregate amount of individual, 

directly-held bonds for households that 

held at least one bond and with 

household incomes in the 90th to 100th 

percentiles was $400,000.53 Setting the 

minimum denomination threshold at $1 

million could thus be expected to 

exclude most households. The agencies 

also would not expect a minimum $1 

million denomination requirement to 

exclude a material number of 

institutional investors from purchasing 

LTD. 


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54The proposed rule would define ‘‘deposits’’ to 

have the same meaning as in the FDI Act. See 12 

U.S.C. 1813(l). The eligible LTD would rank in 

priority in an FDIC receivership after deposits and 

general unsecured liabilities, as established at 12 

U.S.C. 1821(d)(11)(A)(iv). 

55See Final Rule on ‘‘Deposit Insurance 

Regulations; Definition of Insured Deposit,’’ 78 FR 

56583 (Sept. 13, 2013), https://www.govinfo.gov/ 

content/pkg/FR-2013-09-13/pdf/2013-22340.pdf. 

56As discussed above, permitted externally 

issuing IDIs would be permitted to issue eligible 

LTD to affiliates and to nonaffiliates. 

57Consistent with the TLAC rule, a ‘‘wholly 

owned subsidiary’’ of a FBO would be one where 

the foreign parent owns 100 percent of the 

subsidiary’s outstanding ownership interests, 

except that 0.5 percent could be owned by a third 

party for purposes of establishing corporate 

separateness or addressing bankruptcy, insolvency, 

or similar concerns. This recognizes the practice of 

FBOs to own all but a small part of a subsidiary for 

corporate practice purposes with which the 

proposed rule is not intended to interfere. 

Moreover, allowing a very small amount of a foreign 

parent’s subsidiary to be owned by a third party 

would not undermine the purposes of this proposed 

rule. 

Question 26: What would be the 

advantages and disadvantages of 

limiting direct retail investor exposure 

to eligible external LTD? To what extent 

would retail investors be likely to 

directly own eligible external LTD? Do 

retail investors, investing on a direct 

basis as opposed to through 

institutional funds, constitute a 

substantial portion of the market for 

debt instruments such as eligible 

external LTD, such that prohibiting their 

direct investment would meaningfully 

reduce the market for eligible LTD? 

Question 27: To what extent would 

limiting direct retail holdings of eligible 

external LTD contribute to 

concentration of eligible external LTD 

holdings by certain market participants? 

Question 28: What minimum 

denomination amount is most 

appropriate in the range of $100,000 to 

$1 million? Would an amount greater 

than $400,000 be appropriate to provide 

further assurance these instruments will 

generally be held by investors who are 

well positioned to exercise market 

discipline and bear loss in the event of 

the failure of the issuer? Should the 

agencies require the debt instrument for 

eligible LTD to expressly prohibit their 

exchange into smaller denominations? 

Please explain. 

Question 29: What would be the 

advantages and disadvantages to 

limiting indirect exposures to eligible 

LTD by retail investors? 

7. Subordination of Eligible LTD Issued 

by IDIs 

The proposed rule would require 

eligible LTD issued by a covered IDI to 

be contractually subordinated so that 

the claim represented by the LTD in the 

receivership of the IDI would be junior 

to deposit and general unsecured 

claims.54 This requirement would 

ensure that eligible LTD absorbs losses 

prior to depositors and other unsecured 

creditors, which increases the FDIC’s 

optionality when acting as a receiver for 

a failed IDI. For example, as discussed 

above, the presence of eligible LTD at an 

IDI would increase the likelihood that 

the FDIC could transfer all of the 

deposit liabilities (insured and 

uninsured) of a failed bank to a bridge 

depository institution, thereby 

preserving the IDI’s franchise value. 

Requiring contractual subordination 

would also provide further clarity about 

the priority of the claim represented by 

eligible LTD in a receivership of the 

issuing institution, which facilitates an 

orderly resolution. The FDIC may need 

to transfer certain general unsecured 

claims, which could include trade 

creditors (if any) and non-duallypayable foreign deposits,55 to a newlyestablished bridge depository institution 

in order to facilitate its operations. By 

requiring that eligible LTD issued by 

IDIs be contractually subordinated to 

general unsecured creditor claims, the 

eligible LTD would also serve to protect 

those claims, providing greater 

optionality to the FDIC in structuring a 

resolution. While the eligible LTD 

requirement for covered entities does 

not include a contractual subordination 

requirement, in the case that the IDI 

fails, eligible LTD issued by covered 

entities will be structurally 

subordinated to creditor claims against 

the subsidiary IDI. 

Question 30: What would be the 

advantages and disadvantages of 

requiring eligible LTD issued by covered 

IDIs to be subordinated to general 

unsecured creditors? What implications, 

if any, would subordination of eligible 

LTD to general unsecured creditors have 

for other requirements? 

Question 31: What are the advantages 

and disadvantages of limiting the types 

of instruments that qualify as eligible 

external LTD? Would any of the 

proposed features for eligible external 

LTD not be appropriate for any covered 

entities or covered IDIs? What 

characteristics of the specific types of 

institutions required to issue internal 

LTD under the proposed rule would 

caution against requiring eligible 

internal LTD to meet any of the 

proposed eligibility requirements? 

B. Eligible Internal LTD 

The requirements for eligible internal 

LTD are generally the same as those for 

eligible external LTD. However, eligible 

internal debt securities are subject to 

two key distinctions from eligible 

external debt securities under the 

proposed rule. First, eligible internal 

LTD issued by an IDI must be issued to 

and remain held by a company that 

consolidates the covered IDI, generally 

an upstream parent. Second, eligible 

internal LTD would not be subject to the 

minimum principal denomination 

requirement. As discussed further 

below, eligible internal LTD issued by a 

covered IHC would be required to 

include a contractual conversion trigger 

and would not include a prohibition 

against credit sensitive features. 

Where a covered IDI issues eligible 

internal LTD, such eligible internal LTD 

would be required to be paid in and 

issued to a company that consolidates 

the covered IDI.56 This helps ensure that 

eligible internal LTD issued by the 

covered IDI is supported by stable 

funding from its parent, which in turn 

is generally required to issue eligible 

external LTD. Accordingly, a covered 

entity could use the proceeds from the 

issuance of external LTD to purchase 

internal LTD issued by its IDI 

subsidiary. 

For a covered IDI that is a 

consolidated subsidiary of a covered 

IHC, the proposed rule would require 

that eligible internal LTD of the covered 

IDI be issued to the covered IHC, or a 

subsidiary of the covered IHC that 

consolidates the IDI. In other words, to 

constitute eligible internal LTD, the LTD 

of such an IDI could not be directly 

issued to a foreign affiliate that controls 

the IDI; doing so would mean that losses 

could be imposed on foreign affiliates 

through the IDI’s LTD, rather than 

passing up to the covered IHC, which in 

turn has issued outstanding lossabsorbing LTD. This requirement is 

consistent with the design of internal 

eligible LTD issued by a covered IHC to 

its foreign parent or a wholly owned 

subsidiary of that foreign parent. 

Internal LTD issued by a covered IHC to 

a foreign parent must contain a 

contractual conversion trigger, which is 

discussed below. 

Certain covered IHCs that would not 

be expected to enter into resolution 

upon the failure of their parent FBOs 

would be required to issue eligible 

internal LTD to a foreign company that 

directly or indirectly controls the 

covered IHC, or to a wholly owned 

subsidiary of a controlling foreign 

company.57 This would ensure that 

losses incurred by a covered IHC would 

be distributed to a foreign affiliate that 

is not a subsidiary of the covered IHC, 

which would allow the foreign top-tier 

parent to manage the resolution strategy 

for its global operations and manage 


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58See 12 CFR 252.164. 

how the IHC would fit into this global 

resolution strategy. The requirement 

also would mitigate the risk that 

conversion of the eligible LTD to equity, 

as discussed below, would result in a 

change in control of the covered IHC, 

which could create additional 

regulatory and management complexity 

during a failure scenario. 

The proposed rule would not require 

eligible internal LTD to be issued in 

minimum denominations. As discussed 

above, the purpose of the minimum 

denomination requirement is to increase 

the chances that LTD holders are 

sophisticated investors that can provide 

market discipline for covered entities 

and covered IDIs. These concerns do not 

apply in the case of eligible internal 

LTD, which by definition cannot be 

held by retail or outside investors. 

Question 32: What would be the 

advantages and disadvantages of 

permitting all covered IDIs (or certain 

covered IDIs other than just mandatory 

or permitted externally issuing IDIs) to 

satisfy their LTD requirements with 

external LTD? If covered IDIs were able 

to satisfy their LTD requirements with 

external LTD, what would be the 

advantages and disadvantages of 

permitting any such eligible external 

LTD to count towards the LTD 

requirement of the covered IDI’s 

consolidating parent? 

Question 33: What are the advantages 

and disadvantages of permitting a 

covered IDI to issue eligible internal 

LTD to additional non-subsidiary 

affiliates, beyond consolidating parent 

entities? 

Question 34: What are the advantages 

and disadvantages of limiting the types 

of instruments that qualify as eligible 

internal LTD? Which, if any, of the 

proposed features for eligible internal 

LTD instruments would not be 

appropriate for covered IDIs or covered 

IHCs and why? What characteristics of 

any specific types of entities required to 

issue internal LTD under the proposed 

rule would caution against requiring 

eligible internal LTD to meet any of the 

proposed eligibility requirements? 

C. Special Considerations for Covered 

IHCs 

The proposed rule would set forth 

certain requirements for eligible internal 

LTD that are specific to covered IHCs. 

Specifically, the proposed rule would 

require certain covered IHCs to issue 

only eligible internal LTD, where the 

resolution strategy of the covered IHC’s 

foreign parent follows an SPOE model. 

In addition, eligible internal LTD issued 

by covered IHCs must include a 

contractual provision that is approved 

by the Board that provides for 

immediate conversion or exchange of 

the instrument into common equity tier 

1 capital of the covered IHC upon 

issuance by the Board of an internal 

debt conversion order. Finally, eligible 

internal LTD issued by covered IHCs 

would not be subject to a prohibition on 

credit-sensitive features. 

Only certain covered IHCs would 

have the option to issue debt externally 

to third-party investors. Specifically, 

covered IHCs of FBOs with a top-tier 

group-level resolution plan that 

contemplates their covered IHCs or 

subsidiaries of their covered IHCs 

entering into resolution, receivership, 

insolvency, or similar proceedings in 

the United States (resolution covered 

IHCs), are permitted to issue eligible 

LTD externally. Such resolution covered 

IHCs are more analogous to covered 

HCs, because both have established 

resolution plans that involve these 

entities entering resolution proceedings 

in the United States. Covered IHCs of 

FBOs with top-tier group-level 

resolution plans that do not contemplate 

their covered IHCs or the subsidiaries of 

their covered IHCs entering into 

resolution, receivership, insolvency, or 

similar proceedings (non-resolution 

covered IHCs) must issue LTD internally 

within the FBO, from the covered IHC 

to a foreign parent or a wholly owned 

subsidiary of the foreign parent. 

1. Identification as a Resolution or NonResolution Covered IHC 

This proposal would require the toptier FBO of a covered IHC to certify to 

the Board whether the planned 

resolution strategy of the top-tier FBO 

involves the covered IHC or its 

subsidiaries entering resolution, 

receivership, insolvency, or similar 

proceedings in the United States. The 

certification must be provided by the 

top-tier FBO to the Board six months 

after the effective date of the final rule. 

In addition, the top-tier FBO with a 

covered IHC must provide an updated 

certification to the Board upon a change 

in resolution strategy. The proposed 

identification process is similar to the 

process used for U.S. IHCs subject to the 

TLAC rule.58

A covered IHC is a ‘‘resolution 

covered IHC’’ under the proposed rule 

if the certification provided indicates 

that the top-tier FBO’s planned 

resolution strategy involves the covered 

IHC or its subsidiaries entering into 

resolution, receivership, insolvency or 

similar proceeding in the United States. 

A covered IHC is a ‘‘non-resolution 

covered IHC’’ under the proposed rule 

if the certification provided to the Board 

indicates that the top-tier FBO’s 

planned resolution strategy does not 

involve the covered IHC or its 

subsidiaries entering into resolution, 

receivership, insolvency, or similar 

proceedings in the United States. 

In addition, under the proposed rule, 

the Board may determine in its 

discretion that an entity that is certified 

to be a non-resolution covered IHC is a 

resolution covered IHC, or that an entity 

that is certified to be a resolution 

covered IHC is a non-resolution covered 

IHC. In reviewing certifications 

provided with respect to covered IHCs, 

the Board would expect to review all the 

information available to it regarding a 

firm’s resolution strategy, including 

information provided to it by the firm. 

The Board would also expect to consult 

with the firm’s home-country resolution 

authority in connection with this 

review. In addition, the Board may 

consider a number of factors including 

but not limited to: (i) whether the FBO 

conducts substantial U.S. activities 

outside of the IHC chain; (ii) whether 

the group’s capital and liability 

structure is set up in a way to allow for 

losses to be upstreamed to the top-tier 

parent; (iii) whether the top-tier parent 

or foreign affiliates provide substantial 

financial or other forms of support to 

the U.S. operations (e.g., guarantees, 

contingent claims and other exposures 

between group entities); (iv) whether the 

covered IHC is operationally 

independent (e.g., costs are undertaken 

by the IHC itself and whether the IHC 

is able to fund itself on a stand-alone 

basis); (v) whether the covered IHC 

depends on the top-tier parent or foreign 

affiliates for the provision of critical 

shared services or access to 

infrastructure; (vi) whether the covered 

IHC is dependent on the risk 

management or risk-mitigating hedging 

services provided by the top-tier parent 

or foreign affiliates; and (vii) the 

location where financial activity that is 

conducted in the United States is 

booked. 

A covered IHC would have one year 

or a longer period determined by the 

Board to comply with the requirements 

of the proposed rule applicable to nonresolution covered IHCs if it would 

become a non-resolution covered IHC 

because it either changes its resolution 

strategy or if the Board disagrees with 

the covered IHC’s certification of its 

resolution strategy. For example, if the 

Board determines that a firm that had 

certified it is a resolution covered IHC 

is a non-resolution covered IHC for 

purposes of the rule, the IHC would 

have up to one year from the date on 

which the Board notifies the covered 

IHC in writing of such determination to 


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59The phrase ‘‘in default or in danger of default’’ 

would be defined consistently with the standard 

provided by section 203(c)(4) of Title II of the DoddFrank Act. See 12 U.S.C. 5383(c)(4). Consistent with 

section 203’s definition of the phrase, a covered IHC 

would be considered to be in default or in danger 

of default upon a determination by the Board that 

(A) a case has been, or likely will promptly be, 

commenced with respect to the covered IHC under 

the U.S. Bankruptcy Code; (B) the covered IHC has 

incurred, or is likely to incur, losses that will 

deplete all or substantially all of its capital, and 

there is no reasonable prospect for the company to 

avoid such depletion; (C) the assets of the covered 

IHC are, or are likely to be, less than its obligations 

to creditors and others; or (D) the covered IHC is, 

or is likely to be, unable to pay its obligations (other 

than those subject to a bona fide dispute) in the 

normal course of business. 

60See 12 U.S.C. 5383. 

61The Board has delegated authority to approve 

these triggers to the General Counsel, in 

consultation with the Director of the Division of 

Supervision and Regulation, under certain 

circumstances. See 12 CFR 265.6(j). 

62See 12 CFR 252.161. 

comply with the requirements of the 

rule. Since under the proposed rule a 

resolution covered IHC has the option to 

issue LTD externally to third parties but 

non-resolution covered IHCs do not, the 

one-year period would provide the 

covered IHC with time to make any 

necessary adjustments to the 

composition of its LTD so that all of its 

LTD would be issued internally. 

As noted, under the proposed rule, 

the Board may extend the one-year 

period discussed above. In acting on any 

requests for extensions of this time 

period, the Board would consider 

whether the covered IHC had made a 

good faith effort to comply with the 

requirements of the rule. 

2. Contractual Conversion Trigger 

The proposed rule would require 

eligible internal LTD, whether issued by 

resolution covered IHCs or nonresolution covered IHCs, to contain a 

contractual conversion feature. The 

contractual trigger would allow the 

Board to require the covered IHC to 

convert or exchange all or some of the 

eligible internal LTD into common 

equity tier 1 capital on a going-concern 

basis (that is, without the covered IHC’s 

entry into a resolution proceeding) 

under certain circumstances. These 

include if the Board determines that the 

covered IHC is ‘‘in default or in danger 

of default’’ and any of the three 

following additional circumstances 

applies.59 First, the top-tier FBO or any 

of its subsidiaries is placed into 

resolution proceedings. Second, the 

home country supervisory authority 

consents to the exchange or conversion, 

or did not object to the exchange or 

conversion following 24 hours’ notice. 

Third and finally, the Board makes a 

written recommendation to the 

Secretary of the Treasury that the FDIC 

should be appointed as receiver of the 

covered IHC under Title II of the DoddFrank Act.60 The terms of the 

contractual conversion provision in the 

debt instrument would have to be 

approved by the Board.61

The principal purpose of this 

requirement is to ensure that losses 

incurred by the covered IHC are shifted 

to a foreign parent without the covered 

IHC having to enter a resolution 

proceeding. If the covered IHC’s eligible 

internal LTD is sufficient to recapitalize 

the covered IHC in light of the losses 

that the covered IHC has incurred, this 

goal could be achieved through 

conversion of the eligible internal LTD 

into equity upon the occurrence of the 

trigger conditions. 

Eligible external LTD issued by 

resolution covered IHCs is not required 

to contain a contractual conversion 

trigger. The proposed rule gives 

resolution covered IHCs the option to 

issue debt externally to third-party 

investors under the proposed rule on 

the same terms as covered HCs. 

Question 35: The Board maintains an 

expectation that, following receipt of an 

internal debt conversion order, the FBO 

parent of a covered IHC should take 

steps to preserve the going concern 

value of the covered IHC, consistent 

with the resolution strategy of the toptier FBO. Accordingly, the Board would 

expect that, following receipt of an 

internal debt conversion order, a 

covered IHC would not make any 

immediate distributions of cash or 

property, or make immediate payments 

to repurchase, redeem, or retire, or 

otherwise acquire any of its shares from 

its shareholders or affiliates. Should the 

Board codify this expectation in the 

proposed rule for covered IHCs and the 

U.S. IHCs of global systemically 

important FBOs? If so, should the 

regulation text specify that any such 

distributions or payments are subject to 

the Board’s prior approval? 

3. Allowance of Certain Credit-Sensitive 

Features 

The proposed rule would not require 

eligible internal LTD issued by covered 

IHCs to include the prohibition against 

including certain credit-sensitive 

features that applies to other eligible 

LTD. This would match the 

requirements for eligible internal LTD 

issued by U.S. IHCs subject to the 

Board’s TLAC rule.62 Internal LTD, 

which by definition is issued between 

affiliates, is less likely to have a creditsensitive feature. In addition, in contrast 

to eligible internal LTD of covered IDIs, 

eligible internal LTD of a covered IHC 

could be converted to equity by the 

Board. The presence of the creditsensitive feature for the eligible LTD of 

a covered IHC would be less 

problematic once the LTD is converted 

to equity. 

Question 36: What would be the 

advantages and disadvantages of 

making eligible internal LTD issued by 

all covered IHCs subject to the proposed 

rule or the TLAC rule subject to the 

same prohibition on credit-sensitive 

features that applies to eligible external 

LTD? 

D. Legacy External LTD Counted 

Towards Requirements 

The agencies anticipate that some 

covered entities and their subsidiary 

IDIs, as well as potentially certain other 

covered IDIs, will have external LTD 

outstanding at the time of finalization of 

the proposed rule. To enable covered 

entities and covered IDIs to most readily 

and effectively meet minimum LTD 

requirements as the proposed 

requirements are phased in, the 

proposed rule would allow some of this 

legacy external LTD to count toward the 

minimum requirements in the proposed 

rule, even where such legacy external 

LTD does not meet certain eligibility 

requirements. Specifically, the proposal 

would provide an exception for the 

following categories of outstanding 

external LTD instruments issued by 

covered HCs, resolution covered IHCs, 

and their subsidiary IDIs, and permitted 

and required externally issuing IDIs, 

that do not conform to all of the 

eligibility requirements that will apply 

to issuances of eligible internal or 

external LTD going forward once notice 

of the final rule resulting from this 

proposal is published in the Federal 

Register: (i) instruments that contain 

otherwise impermissible acceleration 

clauses, (ii) instruments issued with 

principal denominations that are less 

than the proposed $400,000 minimum 

amount, and (iii) in the case of legacy 

instruments issued externally by a 

covered IDI, are not contractually 

subordinated to general unsecured 

creditors (collectively, eligible legacy 

external LTD). In addition, eligible 

legacy external LTD issued by a 

consolidated subsidiary IDI of a covered 

entity may be used to satisfy the 

minimum external LTD requirement 

applicable to its parent covered HC or 

resolution covered IHC, as well as any 

internal LTD requirement applicable to 

the subsidiary IDI itself. Eligible legacy 

external LTD cannot be used to satisfy 

the internal LTD requirement for 

nonresolution covered IHCs. To qualify 

as eligible legacy external LTD, an 

instrument must have been issued prior 


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63See 12 CFR 252.61 ‘‘Eligible debt security.’’ 

64See 12 CFR 252.64 and .166. 

to the date that notice of the final rule 

resulting from this proposal is 

published in the Federal Register. 

The allowance for eligible legacy 

external LTD would reduce the costs of 

modifying the terms of existing 

outstanding debt or issuing new debt to 

meet applicable minimum LTD 

requirements. Over time, debt that is 

subject to the legacy exception will 

mature and be replaced by LTD that 

must meet all of the proposal’s 

eligibility requirements. This approach 

is consistent with the intent of the 

legacy exceptions that were made 

available to entities subject to the TLAC 

rule in relation to LTD instruments 

issued prior to December 31, 2016.63

As noted above, the proposal would 

authorize the agencies, after providing a 

covered entity or covered IDI with 

notice and an opportunity to respond, to 

order the covered entity or covered IDI 

to exclude from its outstanding eligible 

LTD amount any otherwise eligible debt 

securities. These provisions would also 

apply to eligible legacy external LTD. 

Question 37: What are the advantages 

and disadvantages of creating this 

exception for certain outstanding legacy 

external LTD issued by covered entities 

for purposes of the proposed rule? 

Question 38: What are the advantages 

and disadvantages of establishing the 

date that notice of the final rule 

resulting from this proposal is published 

in the Federal Register as the date 

before which external LTD must have 

been issued to qualify as legacy external 

LTD, as opposed to the date that the 

rule becomes effective? 

Question 39: The agencies welcome 

quantitative information about 

outstanding LTD issuances by covered 

entities or covered IDIs. What amount of 

LTD do covered entities or covered IDIs 

have outstanding? What amount would 

qualify as LTD if all the requirements 

applied upon finalization of the rule? 

What amount would qualify as LTD 

under the proposed exception? 

VI. Clean Holding Company 

Requirements 

To promote the resiliency of covered 

entities and minimize the knock-on 

effects of the failure of a covered entity 

to its counterparties and the financial 

system, the Board proposes to impose 

‘‘clean holding company’’ requirements 

on covered entities. These requirements 

are similar to those imposed on U.S. 

GSIBs and U.S. IHCs subject to the 

TLAC rule.64 Specifically, the proposal 

would prohibit covered entities from 

having the following categories of 

outstanding liabilities: third-party debt 

instruments with an original maturity of 

less than one year (short-term debt); 

QFCs with a third party (third-party 

QFCs); guarantees of a subsidiary’s 

liabilities if the covered entity’s 

insolvency or entry into a resolution 

proceeding (other than resolution under 

Title II of the Dodd-Frank Act) would 

create default rights for a counterparty 

of the subsidiary (subsidiary guarantees 

with cross-default rights); and liabilities 

that are guaranteed by a subsidiary of 

the covered entity (upstream guarantees) 

or that are subject to rights that would 

allow a third party to offset its debt to 

a subsidiary upon the covered entity’s 

default on an obligation owed to the 

third party. Additionally, the proposal 

would limit the total value of a covered 

entity’s (i.e., parent-only, on an 

unconsolidated basis) non-eligible LTD 

liabilities owed to nonaffiliates that 

would rank at either the same priority 

as or junior relative to eligible LTD to 

5 percent of the value of the covered 

entity’s common equity tier 1 capital 

(excluding common equity tier 1 

minority interest), additional tier 1 

capital (excluding tier 1 minority 

interest), and eligible LTD amount. The 

proposed prohibitions and cap would 

apply only to the corporate practices 

and liabilities of the covered entity 

itself. They would not directly restrict 

the corporate practices and liabilities of 

the subsidiaries of the covered entity. 

As discussed further below, these 

provisions provide benefits independent 

of the resolution strategy of a covered 

entity, including by improving the 

resiliency of covered entities, limiting 

certain transactions that can give rise to 

financial stability risks before a covered 

entity fails, and simplifying a covered 

entity so that it and its relevant 

subsidiaries can be resolved in a prompt 

and orderly manner. 

These provisions may also advance 

several goals in connection with the 

resolution of the covered entity. In the 

case of SPOE resolution, these 

provisions support the goal of that 

resolution strategy to achieve the rapid 

recapitalization of the material 

subsidiaries of a covered entity with 

minimal interruption to the ordinary 

operations of those subsidiaries. The 

proposed clean holding company 

restrictions would advance this goal by 

prohibiting transactions that would 

distribute losses that should be borne 

solely by a covered entity to the covered 

entity’s subsidiaries. 

In the case of an MPOE resolution, in 

which a covered entity and its 

subsidiary IDI would enter into 

resolution, these provisions would limit 

the extent to which a subsidiary of a 

covered entity would experience losses 

or disruptions in its operations as a 

result of the failure of the covered entity 

prior to and during resolution. In 

particular, the prohibition on covered 

entity liabilities that are subject to 

upstream guarantees or offset rights 

would prevent a failed covered entity’s 

creditors from passing their losses on to 

the covered entity’s subsidiaries. 

Furthermore, covered entities that 

currently plan for an MPOE resolution 

strategy may nevertheless be resolved 

pursuant to an SPOE resolution strategy 

or adopt an SPOE resolution strategy in 

the future. Applying the clean holding 

company requirements to covered 

entities that currently plan for an MPOE 

resolution ensures that the benefits of 

these requirements that may be more 

significant for covered entities with an 

SPOE resolution strategy are readily 

available to covered entities with an 

MPOE resolution strategy that 

ultimately are resolved with an SPOE 

resolution strategy or eventually change 

their resolution strategy to an SPOE 

strategy. 

Question 40: What would be the 

advantages and disadvantages of 

imposing clean holding company 

requirements on covered entities? What 

would be the costs or consequences on 

business practices of imposing these 

requirements? 

Question 41: Under the existing TLAC 

rule, U.S. IHCs of foreign GSIBs already 

comply with clean holding company 

requirements. What characteristics 

about U.S. IHCs that would be subject 

to the proposed rule (i.e., not subject to 

the existing TLAC rule), if any, would 

make it appropriate or inappropriate to 

apply such requirements? 

Question 42: To what extent are the 

clean holding company requirements 

appropriate for a firm that employs an 

MPOE resolution strategy? What specific 

challenges, if any, would result from 

applying the clean holding company 

requirements to these firms? 

Question 43: What changes, if any, 

would result to an IDI’s business model 

if its parent company is a covered entity 

that becomes subject to the clean 

holding company requirements, where 

the covered entity proposes an MPOE 

resolution strategy? 

A. No External Issuance of Short-Term 

Debt Instruments 

The proposed rule would prohibit 

covered entities from externally issuing 

debt instruments with an original 

maturity of less than one year. Under 

the proposed rule, a liability has an 

original maturity of less than one year 

if it would provide the creditor with the 

option to receive repayment within one 


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64542 Federal Register / Vol. 88, No. 180 / Tuesday, September 19, 2023 / Proposed Rules 

65 12 U.S.C. 5390(c)(8)(D). 

year of the creation of the liability, or if 

it would create such an option or an 

automatic obligation to pay upon the 

occurrence of an event that could occur 

within one year of the creation of the 

liability (other than an event related to 

the covered entity’s insolvency or a 

default related to failure to pay that 

could trigger an acceleration clause). 

The prohibition on external issuance 

of short-term debt instruments would 

improve the resiliency of covered 

entities and their subsidiaries and help 

mitigate the financial stability risks 

presented by destabilizing funding runs. 

A covered entity with significant shortterm obligations is less resilient 

because, in the event of real or 

perceived stress, short-term creditors 

can refuse to roll over their loans to the 

covered entity. In that case, the covered 

entity must either find replacement 

funding or sell assets in order to pay its 

short-term creditors. Both of these 

outcomes normally would weaken the 

covered entity because replacement 

funding is likely to be at a premium and 

the assets would likely be sold at a loss 

in order to quickly generate cash. In 

response to the termination or 

curtailment of a covered entity’s shortterm funding or the covered entity’s 

asset sales, counterparties or customers 

of the covered entity’s subsidiaries may 

also lose confidence in those 

subsidiaries and unwind transactions 

with or withdraw funding from them. 

This issue may be acute for IDIs because 

their main creditors—depositors— 

generally have the ability to demand 

their funds on short notice. Prohibiting 

external issuance of short-term debt 

instruments by covered entities 

decreases the likelihood of these 

outcomes, improving the resiliency of a 

covered entity and its subsidiaries. For 

example, a covered entity is better able 

to serve as a source of managerial and 

financial strength to its subsidiary IDI if 

the covered entity is not experiencing a 

run on its short-term liabilities. 

Decreasing the likelihood of a funding 

run also benefits financial stability. The 

sale of assets by a covered entity to 

repay its short-term creditors can be a 

key channel for the propagation of stress 

through the financial system. If those 

assets are widely held by other firms, 

then the sale by a covered entity of 

those assets can depress the fair value 

of those assets, thereby significantly 

affecting other firms’ balance sheets, 

which could precipitate stress at those 

institutions, which could require further 

asset sales. The proposed rule would 

help mitigate these financial stability 

risks by prohibiting covered entities 

from relying on short-term funding and 

reducing run risk. 

The prohibition against short-term 

funding in the proposed rule applies to 

both secured and unsecured short-term 

borrowings. Although secured creditors 

are less likely to take losses in 

resolution than unsecured creditors, 

secured creditors may nonetheless be 

unwilling to maintain their exposure to 

a covered entity that comes under stress 

in order to avoid potential disruptions 

in access to the collateral during 

resolution proceedings. 

Question 44: What are the advantages 

and disadvantages to the proposed 

prohibition on external issuance by 

covered entities of short-term debt 

instruments? To what extent do covered 

entities that would be subject to the 

proposed rule rely on liabilities that 

would be subject to this prohibition? 

B. Qualified Financial Contracts With 

Third Parties 

Under the proposal, covered HCs 

would be permitted to enter into QFCs 

only with their subsidiaries and covered 

IHCs would be permitted to enter into 

QFCs only with their affiliates, with the 

exception described below of entry into 

certain credit enhancement 

arrangements with respect to QFCs 

between a covered entity’s subsidiary 

and third parties. The proposal defines 

QFCs by reference to Title II of the 

Dodd-Frank Act, which defines QFCs to 

include securities contracts, 

commodities contracts, forward 

contracts, repurchase agreements, and 

swap agreements, consistent with the 

TLAC rule.65

The failure of a large banking 

organization that is a party to a material 

amount of third-party QFCs could pose 

a substantial risk to the stability of the 

financial system. Specifically, it is likely 

that many of that institution’s QFC 

counterparties would respond to the 

institution’s default by immediately 

liquidating their collateral and seeking 

replacement trades with third-party 

dealers, which could cause fire sale 

effects and propagate financial stress to 

other firms that hold similar assets by 

depressing asset prices. The proposed 

restriction on third-party QFCs would 

mitigate this threat to financial stability 

for covered entities under both MPOE 

and SPOE strategies. In the case of a 

successful SPOE resolution, covered 

entities’ operating subsidiaries, which 

may be parties to large quantities of 

QFCs, should remain solvent and not 

fail to meet any ordinary course 

payment or delivery obligations. 

Therefore, assuming that the crossdefault provisions of the QFCs engaged 

in by the operating subsidiaries of 

covered entities are appropriately 

structured, their QFC counterparties 

generally would have no contractual 

right to terminate or liquidate collateral 

on the basis of the covered entity’s entry 

into resolution proceedings. The 

proposed restrictions also would 

support successful MPOE resolution as 

they would encourage covered entities 

to migrate any external QFC activity 

currently being conducted at the 

covered entity level to the relevant 

operating subsidiaries, a structure that 

would be better aligned with the 

activities of the underlying subsidiaries 

and will enable, in the case of IDI 

subsidiaries, the direct application of 

statutory QFC stay provisions provided 

under the FDI Act with regard to such 

QFCs. This migration of covered entity 

QFCs to the subsidiary level should 

simplify resolution proceedings and 

enable continuity of necessary QFC 

activities in resolution. Further, a 

covered entity itself would have, subject 

to the exceptions discussed below, no 

further QFCs with external 

counterparties, if any, and so the 

covered entity’s entry into resolution 

proceedings could result in limited or 

no direct defaults on QFCs and related 

fire sales, assuming the covered entity 

complies with the cross-default and 

upstream guarantee restrictions 

discussed below. The proposed 

restriction on third-party QFCs would 

therefore materially diminish the fire 

sale risk and contagion effects 

associated with the failure of a covered 

entity. 

The proposal would only apply 

prospectively to new agreements 

entered into after the post-transition 

period effective date of a final rule. The 

proposed rule would also exempt 

certain contracts from the prohibition 

on third-party QFCs for covered HCs. 

These exemptions, which are also are 

being proposed for U.S. GSIBs and U.S. 

IHCs of foreign GSIBs, are discussed 

further below and would apply to 

certain underwriting agreements, fully 

paid structured share repurchase 

agreements, and employee and director 

compensation agreements. 

Question 45: What are the advantages 

and disadvantages to the proposed 

prohibition on third-party QFCs? To 

what extent do covered entities that 

would be subject to the proposed rule 

currently enter into QFCs? 

Question 46: What would be the cost 

or consequences on business practices 

of imposing a prohibition on third-party 

QFCs? 


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Federal Register / Vol. 88, No. 180 / Tuesday, September 19, 2023 / Proposed Rules 64543 

66See 12 CFR part 47 (OCC); 12 CFR 252 subpart 

I (Board); 12 CFR part 382 (FDIC); ISDA Universal 

Resolution Stay Protocol (Nov. 12, 2015), https://

www.isda.org/protocol/isda-2015-universalresolution-stay-protocol; ISDA 2018 U.S. Resolution 

Stay Protocol (Aug. 22, 2018), https://www.isda.org/ 

protocol/isda-2018-us-resolution-stay-protocol. 

67Liabilities would be considered ‘‘subject to’’ 

such a rule even if those liabilities were exempted 

from one or more of the requirements of the rule. 68See, e.g., 12 CFR part 47 (OCC); 12 CFR 252 

subpart I (Board); 12 CFR part 382 (FDIC). 

69Transactions subject to the quantitative limits 

of section 23A of the Federal Reserve Act and 

Regulation W include guarantees issued by a bank 

on behalf of an affiliate. See 12 U.S.C. 371c(b)(7)(E); 

12 CFR 223.3(h)(5). 

70See 11 U.S.C. 507; 12 U.S.C. 5390(b). 

C. Guarantees That Are Subject to 

Cross-Defaults 

The proposal would prohibit a 

covered entity from guaranteeing 

(including by providing credit support 

for) any liability between a direct or 

indirect subsidiary of the covered entity 

and an external counterparty if the 

covered entity’s insolvency or entry into 

resolution (other than resolution under 

Title II of the Dodd-Frank Act) would 

directly or indirectly provide the 

subsidiary’s counterparty with a default 

right. The proposal defines the term 

‘‘default right’’ broadly. Guarantees by 

covered entities of subsidiary liabilities, 

in the case of covered HCs, and of 

affiliates, in the case of covered IHCs, 

that are not subject to such cross-default 

rights would be unaffected by the 

proposal. The proposal would only 

apply prospectively to new agreements 

established after the effective date of a 

final rule. 

This proposal would improve the 

resolvability and resilience of covered 

entities that have adopted MPOE and 

SPOE strategies. The proposed 

requirements would support the ability 

of a covered entity’s subsidiaries to 

continue to operate normally or undergo 

an orderly wind-down upon the covered 

entity’s entry into resolution. For 

example, an obstacle to resolution 

would occur if a covered entity’s entry 

into resolution or insolvency operated 

as a default by the subsidiary and 

empowered the subsidiary’s 

counterparties to take default-related 

actions, such as ceasing to perform 

under the contract or liquidating 

collateral. Were subsidiary QFC 

counterparties to take such actions, the 

subsidiary could face liquidity, 

reputational, or other stress that could 

undermine its ability to continue 

operating normally, including by 

placing short-term funding strain on the 

subsidiary. This could have 

destabilizing effects, even for a 

subsidiary of a covered entity with an 

MPOE resolution strategy as it could 

erode the franchise or market value of 

the subsidiary and pose obstacles to its 

orderly resolution or wind-down. The 

proposed prohibition would also 

complement other work that has been 

done to facilitate GSIB resolution 

through the stay of cross-defaults, 

including the agencies’ final rule 

imposing restrictions on QFCs and the 

ISDA Protocol.66

The prohibition on entry by covered 

entities into guarantee arrangements 

covering subsidiary liabilities that 

contain cross-default rights would 

exempt guarantees subject to a rule of 

the Board restricting such cross-default 

rights or any similar rule of another U.S. 

Federal banking agency.67 For example, 

the proposal would exempt from this 

prohibition subsidiary guarantees with 

cross-default rights that would be stayed 

if the underlying contracts were subject 

to the Board, OCC, or FDIC’s rules 

requiring stays of QFC default rights in 

certain resolution scenarios.68 However, 

these rules currently do not apply to 

covered entities. Although the Board 

has not adopted a rule regarding crossdefault provisions of financial contracts 

that would apply to covered entities, the 

proposal leaves open the possibility that 

in the future certain guarantees would 

be permitted to the extent they are 

authorized under a rule of the Board or 

another Federal banking agency. 

Question 47: Would modifications to 

the scope of the agencies’ existing QFC 

stay rules be necessary to support the 

implementation of this provision? What 

are the advantages and disadvantages of 

doing so? Should such a rulemaking 

permit certain guarantee arrangements 

to contain cross-default provisions, 

consistent with 12 CFR 252 subpart I? 

D. Upstream Guarantees and Offset 

Rights 

The proposed rule would prohibit 

covered entities from having 

outstanding liabilities that are subject to 

a guarantee from any direct or indirect 

subsidiary of the holding company 

(upstream guarantees). Both MPOE and 

SPOE resolution strategies are premised 

on the assumption that a covered 

entity’s operating subsidiaries face no 

claims from the creditors of the holding 

company as those subsidiaries either 

continue to operate normally or undergo 

separate resolution proceedings. This 

arrangement could be undermined if a 

liability of the covered entity is subject 

to an upstream guarantee because the 

effect of such a guarantee is to expose 

the guaranteeing subsidiary (and, 

ultimately, its creditors) to the losses 

that would otherwise be imposed on the 

holding company’s creditors. A 

prohibition on upstream guarantees 

would facilitate both MPOE and SPOE 

resolution strategies by increasing the 

certainty that the covered entity’s 

eligible external LTD holders will be 

exposed to loss separately from the 

creditors of a covered entity’s 

subsidiaries. 

Upstream guarantees do not appear to 

be common among covered entities. 

Section 23A of the Federal Reserve Act 

already limits the ability of an IDI to 

issue guarantees on behalf of its parent 

holding company.69 The principal effect 

of the prohibition would therefore be to 

prevent the future issuance of such 

guarantees by material non-bank 

subsidiaries. 

Similarly, the proposed rule prohibits 

covered entities from issuing an 

instrument if the holder of the 

instrument has a contractual right to 

offset the holder’s liabilities, or the 

liabilities of an affiliate of the holder, to 

any of the covered entity’s subsidiaries 

against the covered entity’s liability 

under the instrument. The prohibition 

includes all such offset rights regardless 

of whether the right is provided in the 

instrument itself. Such offset rights are 

another device by which losses that are 

expected to flow to the covered entity’s 

external LTD holders in resolution 

could instead be imposed on operating 

subsidiaries and their creditors. 

E. Cap on Certain Liabilities 

For covered HCs, the proposed rule 

would limit the amount of noncontingent liabilities to third parties 

(i.e., persons that are not affiliates of the 

covered entity) that are not eligible LTD, 

common equity tier 1 capital, or 

additional tier 1 capital and that would 

rank at either the same priority as or 

junior to the covered entity’s eligible 

LTD in the priority scheme of either the 

U.S. Bankruptcy Code or Title II of the 

Dodd-Frank Act to no more than 5 

percent of the sum of a covered HC’s 

common equity tier 1 capital (excluding 

common equity tier 1 minority interest), 

additional tier 1 capital (excluding tier 

1 minority interest), and eligible LTD 

amount.70 The cap would not apply to 

instruments that were eligible external 

LTD when issued and have ceased to be 

eligible (because their remaining 

maturity is less than one year) as long 

as the holder of the instrument does not 

have a currently exercisable put right; 

nor would it apply to payables (such as 

dividend- or interest-related payables) 

that are associated with such liabilities 

(related liabilities). Liabilities that 

would be expected to be subject to the 

cap include debt instruments with 

derivative-linked features (i.e., 

structured notes); external vendor and 


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71See 12 CFR 252.64(b)(1) (cap on unrelated 

liabilities for U.S. GSIBs); 12 CFR 252.166(b)(1) (cap 

on unrelated liabilities for U.S. IHCs of foreign 

GSIBs). 

72Estimated to be approximately 4.6 percent. 

Calculated by dividing the average of the numerator 

and denominator for covered HCs and covered 

IHCs. The liabilities included in the numerator for 

this calculation are reported, as of December 31, 

2022, as line items 13 and 17 from the FR Y–9LP. 

The tier 1 capital and total consolidated asset 

amount used to estimate the minimum LTD 

requirement for the denominator are from line items 

HC–R.26 and HC–R.46.a of the FR Y–9C, 

respectively. 

73This inclusion of liabilities owed to parents of 

the resolution covered IHC also aligns with the cap 

on liabilities of covered HCs, which would include 

liabilities held by shareholders of the covered HC. 

74 In addition to LTD issued by U.S. GSIBs under 

the Board’s TLAC rule, the 2021 amendments to the 

capital rule covered LTD issued by foreign global 

systemically important banking organizations and 

their U.S. IHCs. See Regulatory Capital Treatment 

for Investments in Certain Unsecured Debt 

Instruments of Global Systemically Important U.S. 

Bank Holding Companies, Certain Intermediate 

Holding companies, and Global Systemically 

Important Foreign Banking Organizations; Total 

Loss-Absorbing Capacity Requirements, 86 FR 708 

(Jan. 6, 2021). This rule also provided for deduction 

of debt instruments that are ranked at either the 

same priority as or subordinated to LTD 

instruments and debt instruments issued by global 

systemically important FBOs under foreign 

standards similar to the Board’s TLAC rule. 

operating liabilities, such as for utilities, 

rent, fees for services, and obligations to 

employees; and liabilities arising other 

than through a contract (e.g., liabilities 

created by a court judgment) 

(collectively, unrelated liabilities). 

The purpose of this requirement is to 

limit the amount of liabilities that are 

not common equity tier 1 capital, 

additional tier 1 capital, or eligible LTD 

that would rank at either the same 

priority as or junior relative to eligible 

LTD in a bankruptcy or resolution 

proceeding. This ensures that eligible 

LTD absorbs losses prior to almost all 

other liabilities of the covered entity 

and mitigates the legal risk that nonLTD creditors of a failed covered entity 

object to or otherwise complicate the 

imposition of losses in bankruptcy on 

the class of creditors that includes the 

eligible LTD of the covered entity. As a 

practical matter, the cap also would 

result in a significant portion of a 

covered entity’s unsecured liabilities 

being composed of eligible LTD, which 

is preferable because eligible LTD has 

the features discussed above that more 

readily absorb loss and facilitate a 

simpler resolution relative to other 

types of unsecured debt. 

The proposal would not subject a 

covered entity to this cap if the covered 

entity elects to subordinate all of its 

eligible LTD to all of the covered 

entity’s other liabilities. Subordinating 

all of a covered entity’s eligible LTD 

also would address the risk that nonLTD creditors might object to or 

otherwise complicate imposing losses 

on investors in eligible LTD. Permitting 

covered entities a choice between 

adhering to the cap on unrelated 

liabilities or instead contractually 

subordinating all eligible LTD to all of 

the covered entity’s other liabilities 

provides greater flexibility in choosing 

how to comply with the proposed rule. 

The proposed calibration of 5 percent 

is consistent with the 5 percent 

calibration for the similar cap on 

unrelated liabilities that applies to the 

parent holding companies of U.S. GSIBs 

and U.S. IHCs of foreign GSIBs.71 Like 

the cap for U.S. GSIBs and the U.S. IHCs 

of foreign GSIBs, the proposed cap for 

a covered entity would be specified as 

a percentage of the sum of the covered 

entity’s common equity tier 1 capital, 

additional tier 1 capital, and eligible 

LTD amount. The proposed 5 percent 

cap would apply to the parent-only 

balance sheets of covered entities. 

Specifically, Board staff estimates that, 

on average, the amount of liabilities that 

would be subject to this cap as a 

percentage of the sum of a firm’s tier 1 

capital and minimum LTD requirement 

under the proposal would be less than 

the proposed 5 percent cap.72

Under the proposed rule, the set of 

liabilities that would count towards the 

unrelated liabilities cap for a resolution 

covered IHC would be different than the 

liabilities that would count towards the 

cap for non-resolution covered IHCs 

(discussed below) because resolution 

covered IHCs are permitted to issue 

eligible LTD externally to third parties. 

The cap for resolution covered IHCs 

applies to unrelated liabilities owed to 

parent and sister affiliates, as well as to 

unaffiliated third parties, because these 

IHCs have the option to issue external 

LTD that will be expected to bear losses 

in the resolution covered IHC’s 

individual resolution proceeding and 

that may rank at either the same priority 

as or senior to such unrelated liabilities. 

Thus, these firms may owe significant 

amounts of unrelated liabilities to their 

FBO parents or another affiliate that 

would remain outstanding when the 

IHC enters resolution, because such 

entities are not anticipated to support 

the IHC under the resolution plan of the 

parent FBO.73 The cap on unrelated 

liabilities owed to parents and sister 

affiliates limits the amount of these 

liabilities that would be outstanding at 

the time that a resolution covered IHC 

enters into resolution. 

The cap on unrelated liabilities for 

non-resolution covered IHCs does not 

include liabilities owed to foreign 

affiliates because for such entities, the 

eligible LTD held by foreign affiliates 

should, in a resolution scenario, convert 

to equity of the covered IHC, either 

through actions of the parent or the 

Board. Therefore, in contrast to 

resolution covered IHCs, concern about 

liabilities owed to the FBO parent or 

other affiliated parties is minimal. 

Question 48: What would be the 

advantages and disadvantages of the 

proposed cap on unrelated liabilities? 

Could the objectives of the cap be 

achieved through other means? For 

example, instead of imposing a cap on 

unrelated liabilities, should the Board 

require that the LTD required under this 

rule be contractually subordinated so 

that it represents the most subordinated 

debt claim in receivership, insolvency, 

or similar proceedings? Would a 

different threshold for the cap be more 

appropriate for covered HCs or covered 

IHCs? For example, should the cap be 

calibrated to be modestly higher than 

the cap for U.S. GSIBs and the U.S. IHCs 

of foreign GSIBs because GSIBs are 

required to maintain outstanding a 

greater percentage of equity capital? 

Question 49: What are the advantages 

and disadvantages of the proposed 

calibration of 5 percent of the sum of 

common equity tier 1 capital, additional 

tier 1 capital, and eligible LTD amount? 

Would an alternative value in the range 

of 4 percent to 15 percent be more 

appropriate? If so, why? 

VII. Deduction of Investments in 

Eligible External LTD From Regulatory 

Capital 

In 2021, the agencies adopted an 

amendment to the capital rule that 

required U.S. GSIBs, their subsidiary 

depository institutions, and Category II 

banking organizations to make certain 

deductions from regulatory capital for 

investments in LTD issued by U.S. 

GSIBs under the Board’s TLAC rule to 

meet the minimum TLAC 

requirements.74 Among other 

requirements, under the current capital 

rule a U.S. GSIB, U.S. GSIB subsidiary, 

or Category II banking organization is 

required to deduct investments in LTD 

issued by banking organizations that are 

required to issue LTD to the extent that 

aggregate investments by the investing 

U.S. GSIB, U.S. GSIB subsidiary, or 

Category II banking organization in the 

capital and LTD of other financial 

institutions exceed a specified threshold 

of the investing banking organization’s 

regulatory capital. For purposes of the 

threshold deduction, U.S. GSIBs, U.S. 

GSIB subsidiaries, and Category II 

banking organizations are permitted to 

exclude a limited amount of LTD 


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75On July 27, 2023, the agencies issued a 

proposal to amend the capital requirements for 

banking organizations with total assets of $100 

billion or more and their subsidiary depository 

institutions (i.e., banking organizations subject to 

category I–IV standards), and to banking 

organizations with significant trading activity (Basel 

III reforms proposal). See Joint press release: 

Agencies request comment on proposed rules to 

strengthen capital requirements for large banks (July 

27, 2023), https://www.federalreserve.gov/ 

newsevents/pressreleases/bcreg20230727a.htm. 

investments, with U.S. GSIBs and U.S. 

GSIB subsidiaries only permitted to 

exclude LTD investments held for 

market making purposes. The deduction 

framework in the current capital rule is 

intended to reduce interconnectedness 

and contagion risk by discouraging U.S. 

GSIBs, U.S. GSIB subsidiaries, and 

Category II banking organizations from 

investing in the capital of other 

financial institutions and in the LTD 

issued by banking organizations that are 

required to issue LTD. 

Distress at a covered entity or IDI that 

issues externally, and the associated 

write-down or conversion into equity of 

its eligible LTD, could have a direct 

negative impact on the capital of 

investing banking organizations, 

potentially at a time when such banking 

organizations may themselves be 

experiencing financial stress. Requiring 

that U.S. GSIBs, U.S. GSIB subsidiaries, 

and Category II banking organizations 

apply the deduction framework to the 

LTD of a covered entity or IDI that 

issues externally would discourage 

these banking organizations from 

investing in such instruments, and 

would thereby help to reduce both 

interconnectedness within the financial 

system and systemic risk. Therefore, the 

proposal would expand the current 

deduction framework in the capital rule 

for U.S. GSIBs, U.S. GSIB subsidiaries, 

and Category II banking organizations to 

also apply to eligible external LTD 

issued by covered entities and 

mandatory or permitted externally 

issuing IDIs to meet the minimum LTD 

requirement set forth in this proposal by 

amending the capital rule’s definition of 

covered debt instrument. The expanded 

deduction framework would apply to all 

legacy external LTD, including 

externally issued LTD of an internally 

issuing IDI that was issued prior to the 

date that the notice of the final rule 

resulting from this proposal is 

published in the Federal Register. The 

proposal would not itself otherwise 

amend the capital rule’s deduction 

framework. Notably, however, the 

recently released Basel III reforms 

proposal 75 would subject Category III 

and IV banking organizations to the LTD 

deduction framework that currently 

only applies to U.S. GSIBs, U.S. GSIB 

subsidiaries, and Category II banking 

organizations and would apply a 

heightened risk weight to investments 

in LTD that are not deducted. Thus, if 

both this proposal and the Basel III 

reforms proposal are adopted as 

proposed, Category III and IV banking 

organizations will newly become subject 

to the capital rule’s deduction 

framework for investments in LTD and 

the deduction framework would be 

expanded to apply to eligible LTD 

issued by covered entities and 

mandatory and permitted externally 

issuing IDIs. 

Question 50: What are the advantages 

and disadvantages of expanding the 

deduction framework to apply to eligible 

external LTD issued to satisfy the LTD 

requirements set forth in the proposal? 

To what extent would the proposed 

deduction from regulatory capital of 

investments in eligible external LTD 

restrict the ability of external issuers to 

issue eligible external LTD? 

Question 51: What would be the 

advantages or disadvantages of an 

alternative approach of requiring the 

deduction of eligible external LTD of 

only certain external issuers? For 

example, should eligible LTD of only 

larger firms within Categories I–IV be 

subject to the deduction framework? 

Should eligible external LTD issued by 

IDIs that are covered IDIs solely due to 

their affiliation with another covered IDI 

not be subject to the deduction 

framework? What considerations should 

affect whether an external issuer’s 

eligible external LTD should be subject 

to the deduction framework? 

Question 52: What would be the 

advantages and disadvantages of 

amending the proposed application of 

the deduction framework to exclude 

from deduction eligible legacy external 

LTD? 

VIII. Transition Periods 

The agencies propose to provide a 

transition period for covered entities 

and covered IDIs that would be subject 

to the rule when it is finalized, and a 

transition period for covered entities 

and covered IDIs that become subject to 

the rule after it is finalized. The purpose 

of these proposed transition periods is 

to minimize the effect of the 

implementation of the proposal on 

covered entities and covered IDIs, as 

well as on credit availability and credit 

costs in the U.S. economy. 

The agencies propose to provide 

covered entities and covered IDIs three 

years to achieve compliance with the 

final rule. The three-year transition 

period would be the same for all 

covered IDIs, regardless of whether a 

covered IDI is required to issue 

internally to a parent or externally. 

Three years would provide covered 

entities and covered IDIs adequate time 

to make necessary arrangements to 

comply with the final rule without 

creating undue burden that would have 

unreasonable adverse impacts for 

covered entities and covered IDIs. The 

agencies may accelerate or extend this 

transition period in writing for the 

covered IDIs for which they are the 

appropriate Federal banking agency, 

and the Board may accelerate or extend 

this transition period in writing for 

covered entities. 

Over that three-year period, covered 

entities and covered IDIs would need to 

meet 25 percent of their LTD 

requirements by one year after 

finalization of the rule, 50 percent after 

two years of finalization, and 100 

percent after three years. This required 

phase-in schedule would apply to 

covered entities and covered IDIs that 

are subject to the rule beginning on the 

effective date of the finalized rule, and 

would likewise apply upon a firm 

becoming subject to the rule sometime 

after finalization. The proposed rule 

would provide additional clarifications 

regarding the three-year transition 

period to prevent evasion of the rule. 

The three-year transition period would 

not restart for a covered IDI that changes 

charters. For example, a national bank 

subject to the OCC’s proposed rule 

would not have an additional three 

years to transition into compliance with 

the FDIC’s proposed rule if the national 

bank changes its charter to a statechartered savings association. Likewise, 

the holding company of such a bank 

would not have an additional three 

years to transition to the Board’s rule for 

SLHCs. Covered entities that transition 

from being subject to the proposed LTD 

requirement to the requirements 

applicable to U.S. GSIBs or U.S. IHCs 

controlled by foreign GSIBs that are 

codified in the Board’s existing TLAC 

rule would have three years to comply 

with those requirements. However, 

during that three-year period, such 

entities would be required to continue 

to comply with the LTD requirement 

and other requirements of the proposed 

rule. That is, a covered entity that is 

subject to the proposed rule and then 

becomes subject to the TLAC rule must 

continue to satisfy the minimum LTD 

and other requirements of the proposed 

rule during the three-year transition 

period for the TLAC rule. During this 

transition period, the covered entity 

would be required to issue new eligible 

LTD if necessary to maintain the 

minimum eligible LTD requirement set 

forth in the proposed rule. 


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76Under the TLAC rule, U.S. GSIBs and U.S. IHCs 

of global systemically important FBOs have three 

years from when they meet the scope of application 

requirements for that rule. See 12 CFR 252.60(b)(2) 

and .160(b)(2). 

77Total 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 FBOs, 82 FR 8266 (Jan. 24, 

2017), https://www.federalregister.gov/documents/ 

2017/01/24/2017-00431/total-loss-absorbingcapacity-long-term-debt-and-clean-holdingcompany-requirements-for-systemically#citation102-p8300. 

78 12 CFR part 252, subparts G and P. 

79 12 CFR 252.63(c) and .165(d). 

80 12 CFR 252.64 and .166. 

81See 12 CFR 252.62–.62, .162, and .165. 

82Compare 12 CFR 252.62(b)(1)(ii) and 

.162(b)(1)(ii) with 12 CFR 252.63(b)(3), 

.165(c)(1)(iii), and .165(c)(2)(iii). 

Question 53: Is three years an 

appropriate amount of time for firms 

that become subject to the proposed rule 

immediately upon finalization and 

those that become subject after the date 

on which the rule is finalized to 

transition into full compliance? Would a 

shorter period, such as two years, be an 

adequate transition period? If so, should 

a shorter transition period also include 

a phase-in of 50 percent of the LTD 

requirement by year one and 100 

percent by year two? Alternatively, 

would a longer period, such as four 

years, be appropriate? 

Question 54: Should the agencies 

consider a longer transition specifically 

for Category IV covered entities and 

their covered IDI subsidiaries, which 

may have less existing LTD than larger 

covered entities and covered IDIs? For 

example, should these companies have 

four years to transition to the proposed 

requirements? 

Question 55: During the three-year 

period proposed by the agencies, what 

would be the advantages and 

disadvantages of requiring covered 

entities and covered IDIs to submit an 

implementation plan for complying with 

the proposed requirements at the end of 

the three-year period rather than or in 

addition to satisfying the specified 

phased in percentages of the LTD 

requirement on the timeline proposed? 

Question 56: Should the agencies 

consider requiring a different phase in, 

or a phase in that requires partial 

compliance at a different date? For 

example, should the agencies consider a 

phase in that requires covered entities 

and covered IDIs to meet 30 percent of 

their LTD requirement by year one, 60 

percent by year two, and 100 percent by 

year three? What factors should the 

agencies consider in determining the 

appropriateness of a phase in 

requirement (for example, how should 

the agencies account for the fact that 

some covered entities already have 

existing LTD instruments that would be 

eligible LTD) or in structuring the phasein requirement? 

Question 57: If the agencies revise the 

proposed transition period to be less 

than three years or retain the phase-in 

requirement, should the Board amend 

the requirements in the existing TLAC 

rule for U. S. GSIBs and U.S. IHCs of 

global systemically important FBOs to 

include the same transition periods or 

phase-in requirement? 76

IX. Changes to the Board’s TLAC Rule 

In 2017, the Board finalized a TLAC 

and LTD requirement for the top-tier 

parent holding companies of domestic 

U.S. GSIBs (TLAC HCs) and IHCs of 

foreign GSIBs (TLAC IHCs and, together 

with TLAC HCs, ‘‘TLAC companies’’) to 

improve the resiliency and resolvability 

of TLAC companies and thereby reduce 

threats to financial stability.77 The 

TLAC rule is intended to improve the 

resolvability of GSIBs without 

extraordinary government support or 

taxpayer assistance by establishing 

‘‘total loss-absorbing capacity’’ 

standards for the GSIBs and requiring 

them to issue a minimum amount of 

LTD. The TLAC rule requires TLAC 

companies to maintain outstanding 

minimum levels of TLAC and eligible 

LTD; 78 establishes a buffer on top of 

both the risk-weighted asset and 

leverage components of the TLAC 

requirements, the breach of which 

would result in limitations on a TLAC 

company’s capital distributions and 

discretionary bonus payments; 79 and 

applies ‘‘clean holding company’’ 

limitations to TLAC companies to 

further improve their resolvability and 

the resiliency of their operating 

subsidiaries.80

Since adopting the TLAC rule in 

2017, the Board has gained experience 

administering the rule, including by 

responding to questions from TLAC 

companies and monitoring compliance 

by TLAC companies with the rule. In 

light of that experience, the Board is 

proposing to make several amendments 

to the TLAC rule, as discussed in greater 

detail below. These amendments 

generally are technical or intended to 

improve harmony between provisions 

within the TLAC rule and address items 

that have been identified through the 

Board’s administration of the TLAC 

rule. 

A. Haircut for LTD Used To Meet TLAC 

Requirement 

The TLAC rule requires TLAC 

companies to maintain a minimum 

amount of TLAC and a minimum 

amount of eligible LTD.81 Eligible LTD 

generally can be used to satisfy both 

these requirements. However, eligible 

LTD must have minimum maturities to 

count towards the requirements, and the 

minimum maturity required to count 

towards each requirement is different. 

For both the TLAC and LTD 

requirements, 100 percent of the amount 

of eligible LTD that is due to be paid in 

two or more years counts towards the 

requirements, and zero percent of the 

amount of eligible LTD that is due to be 

paid within one year counts towards the 

requirements. However, while 100 

percent of the amount of eligible LTD 

that is due to be paid in one year or 

more but less than two years counts 

towards the TLAC requirement, only 50 

percent of the amount counts towards 

the LTD requirement.82

When it adopted the TLAC rule, the 

Board stated that the purpose of the 50 

percent haircut applied for purposes of 

the LTD requirement with respect to the 

amount of eligible LTD that is due to be 

paid between one and two years is to 

protect a TLAC company’s LTD lossabsorbing capacity against a run-off 

period in excess of one year (as might 

occur during a financial crisis or other 

protracted stress period) in two ways. 

First, the 50 percent haircut requires 

TLAC companies that rely on eligible 

LTD that is vulnerable to such a run-off 

period (because it is due to be paid in 

less than two years) to maintain 

additional LTD loss-absorbing capacity. 

Second, it incentivizes TLAC companies 

to reduce or eliminate their reliance on 

LTD loss-absorbing capacity that is due 

to be paid in less than two years, since 

by doing so they avoid being required to 

issue additional eligible LTD in order to 

account for the haircut. A TLAC 

company could reduce its reliance on 

eligible LTD that is due to be paid in 

less than two years by staggering its 

issuance, by issuing eligible LTD that is 

due to be paid after a longer period, or 

by redeeming and replacing eligible 

LTD once the amount due to be paid 

falls below two years. 

The Board is proposing to amend the 

TLAC rule to change the haircuts that 

are applied to eligible LTD for purposes 

of compliance with the TLAC 

requirement to conform to the haircuts 

that apply for purposes of the LTD 

requirement. Accordingly, the proposed 

rule would allow only 50 percent of the 

amount of eligible LTD with a maturity 

of one year or more but less than two 

years to count towards the TLAC 

requirement. This change would 

simplify the rule so that the same 

haircut regime applies across the TLAC 


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83The agencies recognize that their Basel III 

reforms proposal would, if adopted, increase riskweighted assets for this group of firms, which 

would mechanically increase TLAC requirements 

and create moderate projected shortfalls in TLAC at 

several GSIBs. The change in eligible LTD proposed 

here could modestly increase the size and number 

of TLAC shortfalls beyond those projected as a 

result of the Basel III proposal. 

84See 12 CFR 252.64 and 12 CFR 252.166. 

85See 12 CFR 252.64(a)(3). 

86See 12 CFR 252.61 ‘‘Qualified financial 

contract.’’ 

87 Id. 

and LTD requirements. Adopting the 50 

percent haircut for the TLAC 

requirement also would support the 

goals the Board noted for applying the 

haircut for purposes of the LTD rule. 

Applying the haircut to the TLAC 

requirement would improve TLAC 

companies’ management of the tenor of 

their eligible LTD. The proposed change 

would incentivize firms to reduce 

reliance on eligible LTD with maturities 

of less than two years and increase the 

TLAC requirement for firms that rely 

heavily on eligible LTD with maturities 

of less than two years. 

Staff analyzed the change in TLAC 

ratios that would be implied by this 

proposed 50 percent haircut on eligible 

LTD maturing between one and two 

years. Seventeen entities are currently 

subject to TLAC requirements, eight of 

which are U.S. GSIBs and nine of which 

are foreign GSIB IHCs. The staff analysis 

relied on data from the FR Y–9C as of 

March 2023. On this basis, overall 

aggregate TLAC at these seventeen 

GSIBs would decline by roughly $65 

billion (some 2.7 percent) as a result of 

the proposed change to the eligible LTD 

haircut. 

Based on these estimates, staff 

projects that all GSIBs would meet or 

nearly meet their TLAC requirements 

under the proposed change.83 Staff did 

not consider whether the proposal 

might prompt behavioral changes at the 

seventeen GSIBs, primarily because the 

magnitudes of possible declines in 

TLAC and the potential associated 

effects appear to be modest, as 

discussed above. However, staff would 

anticipate that impacted entities would 

adjust their issuance to mitigate the 

impact of this change. 

The agencies invite comment on the 

implications of the interaction of the 

proposal to modify the eligible LTD 

haircut with proposed changes to the 

agencies’ capital rule under the Basel III 

proposal. 

Question 58: How would a different 

remaining maturity requirement or 

amortization schedule better achieve the 

objectives of the TLAC rule? 

B. Minimum Denominations for LTD 

Used To Satisfy TLAC Requirements 

The Board proposes to amend the 

TLAC rule so that eligible LTD must be 

issued in minimum denominations for 

the same reasons discussed in section 

III.C.7 of this supplementary 

information section. 

Question 59: Should the Board 

impose a higher minimum 

denomination for TLAC companies 

subject to the TLAC rule? Should the 

minimum denomination be higher (e.g., 

$1 million) for companies subject to the 

TLAC rule than for covered entities 

subject to the newly proposed LTD 

requirement? 

C. Treatment of Certain Transactions for 

Clean Holding Company Requirements 

The TLAC rule applies clean holding 

company requirements to the operations 

of TLAC HCs to further improve their 

resolvability and the resiliency of their 

operating subsidiaries.84 One of these 

requirements is that a TLAC HC must 

not enter into a QFC, with the exception 

of entry into certain credit enhancement 

arrangements with respect to QFCs 

between a TLAC HC’s subsidiary and 

third parties, with a counterparty that is 

not a subsidiary of the TLAC HC (the 

‘‘QFC prohibition’’).85 The final rule 

defined QFC as it is defined in 12 U.S.C. 

5390(c)(8)(D).86 This definition includes 

a ‘‘securities contract,’’ which is further 

defined to mean ‘‘a contract for the 

purchase, sale, or loan of a security, . . . 

a group or index of securities, . . . or 

any option on any of the foregoing, 

including any option to purchase or sell 

any such security, . . . or option. 

. . .’’ 87

The Board explained that the QFC 

prohibition would mitigate the 

substantial risk that could be posed by 

the failure of a large banking 

organization that is a party to a material 

amount of third-party QFCs. First, the 

Board noted that TLAC HCs’ operating 

subsidiaries, which are parties to large 

quantities of QFCs, are expected to 

remain solvent under an SPOE 

resolution and not expected to fail to 

meet any ordinary course payment or 

delivery obligations during a successful 

SPOE resolution. Therefore, assuming 

that the cross-default provisions of the 

QFCs engaged in by the operating 

subsidiaries of TLAC HCs are 

appropriately structured, their QFC 

counterparties generally would have no 

contractual right to terminate or 

liquidate collateral on the basis of the 

TLAC HC’s entry into resolution 

proceedings. Second, the TLAC HCs 

themselves would be subject to a 

general prohibition on entering into 

QFCs with external counterparties, so 

their entry into resolution proceedings 

would not result in substantial QFC 

terminations and related fire sales. The 

restriction on third-party QFCs would 

therefore materially diminish the fire 

sale risk and contagion effects 

associated with the failure of a TLAC 

HC. 

In its administration of the rule since 

it was finalized, the Board has gained 

experience with agreements that may 

constitute QFCs and which the Board 

believes may not present the risks 

intended to be addressed by the clean 

holding company requirements. 

Accordingly, the Board proposes to 

amend the clean holding company 

requirements so that TLAC HCs may 

enter into underwriting agreements, 

fully paid structured share repurchase 

agreements, and employee and director 

compensation agreements, each 

described below. The Board also 

proposes to amend the rule so that the 

Board may determine, upon request, 

that additional agreements are not 

subject to the QFC prohibition. 

These changes would also be applied 

to the clean holding company 

requirements proposed for covered HCs, 

discussed in section VI.B of this 

supplementary information. 

1. Underwriting Agreements 

An underwriting agreement is an 

agreement between an issuer of 

securities, in this case, a U.S. GSIB, and 

one or more underwriters, dealers, 

brokers or other purchasers for the 

purpose of issuing or distributing 

securities of the issuer, whether by 

means of an underwriting syndicate or 

through an individual dealer or broker. 

These agreements generally will not 

represent a risk to the orderly resolution 

of a U.S. GSIB because the underwriter, 

not the U.S. GSIB, has the payment 

obligations in connection with the 

issuance of securities by the U.S. GSIB, 

which limits the potential adverse 

impact on the liquidity of the U.S. GSIB 

and, therefore, its resolvability. 

2. Fully Paid Structured Share 

Repurchase Agreements 

Defined as an arrangement between 

an issuer (e.g., the top level parent 

holding company of a U.S. GSIB) and a 

third-party broker-dealer in connection 

with a stock repurchase plan of the 

issuer where the issuer enters into a 

forward contract with the broker-dealer 

that is fully prepaid by the issuer and 

where the broker-dealer agrees to 

purchase the issuer’s stock in the market 

over the term of the agreement in order 

to deliver the shares to the issuer. These 

agreements may not present risks to the 


ddrumheller on DSK120RN23PROD with PROPOSALS2
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88See 12 CFR 252.166(a)(3). 

orderly resolution of a U.S. GSIB 

because the full purchase price of the 

stock is paid in advance and the firm 

has no ongoing liability, again limiting 

potential future liquidity impacts. 

3. Employee and Director Compensation 

Agreements 

A stock option represents the right of 

an employee to purchase a specific 

number of the issuer’s (e.g., U.S. GSIB) 

shares at a fixed price, also known as a 

strike price (or exercise price), within a 

certain period of time (or, if the stock 

option is to be cash-settled, to receive a 

cash payment reflecting the difference 

between the strike price and the market 

price at the time of exercise). These 

agreements also are unlikely to present 

risks to the orderly resolution of a U.S. 

GSIB because the exercise of such a QFC 

in times of material financial distress or 

pending bankruptcy is unlikely to have 

any material effect on the cash position 

of the issuer. If the stock options are not 

exercised, the employee becomes a 

creditor in the bankruptcy proceedings 

that will be effectively subordinated to 

the same level as common stock under 

section 510(b) of the U.S. Bankruptcy 

Code. 

4. Other Agreements as Determined by 

the Board 

The Board also proposes to reserve 

the authority to determine that 

additional agreements would not be 

subject to the QFC prohibition if the 

Board determines that exempting the 

agreement from the QFC prohibition 

would not pose a material risk to the 

orderly resolution of the U.S. GSIB or 

the stability of the U.S. banking or 

financial system. This would provide 

the Board flexibility to exempt other 

agreements from the QFC prohibition in 

the future. The Board expects it would 

delegate authority to act on these 

requests to staff. 

Question 60: Would exempting 

underwriting agreements, fully paid 

structured share repurchase agreements, 

and employee and director 

compensation agreements from the QFC 

prohibition present risk to the orderly 

resolution of a TLAC HC? 

Question 61: Should the Board 

include in the regulation factors it 

would consider in determining to 

exempt additional agreements from the 

QFC prohibition? 

Question 62: Would permitting a 

TLAC HC to enter into these agreements 

undermine the purposes of the clean 

holding company requirements? For 

example, would it complicate the 

orderly resolution of U.S. GSIBs or pose 

financial stability risks? 

Question 63: Should the proposed 

exemptions from the QFC prohibition be 

available for the similar QFC 

prohibition applicable to TLAC 

IHCs? 88 Should they be extended to 

covered IHCs? To what extent do TLAC 

and covered IHCs engage in 

underwriting agreements, fully paid 

structured share repurchase agreements, 

and employee and director 

compensation agreements? 

D. Disclosure Templates for TLAC HCs 

The Board has long supported 

meaningful public disclosure by TLAC 

HCs. Public disclosures of a TLAC HC’s 

activities and the features of its risk 

profile work in tandem with the 

regulatory and supervisory frameworks 

applicable to TLAC HCs by helping to 

support robust market discipline. In this 

way, meaningful public disclosures help 

to support the safety and soundness of 

TLAC HCs and the financial system 

more broadly. 

The proposal would require a TLAC 

HC to make certain quantitative and 

qualitative disclosures related to the 

creditor ranking of the TLAC HC’s 

liabilities. The proposal would not 

subject a banking organization that is a 

consolidated subsidiary of a TLAC HC 

to the proposed public disclosure 

requirements. The proposal would 

require a TLAC HC to comply with the 

same standards related to internal 

controls and verification of disclosures, 

as well as senior officer attestation 

requirements, as applied to the 

disclosure requirements of banking 

organizations under the Board’s capital 

rule. A TLAC HC could leverage 

existing systems it has in place for other 

public disclosures, including those set 

forth in the agencies’ regulatory capital 

rule. 

1. Frequency of Disclosures 

The proposal would require that 

disclosures be made at least every six 

months on a timely basis following the 

disclosure as of date. In general, where 

a TLAC HC’s fiscal year end coincides 

with the end of a calendar quarter, the 

Board would consider disclosures to be 

timely if they are made no later than the 

applicable SEC disclosure deadline for 

the corresponding Form 10–K annual 

report. 

2. Location of Disclosures 

The last three years of the proposed 

disclosure would be required to be 

made publicly available (for example, 

included on a public website). Except as 

discussed below, management would 

have some discretion to determine the 

appropriate medium and location of the 

disclosures. Furthermore, a TLAC HC 

would have flexibility in formatting its 

public disclosures, subject to the 

requirements for using the disclosure 

template, discussed below. 

The Board encourages management to 

provide the disclosure on the same 

public website where it provides other 

required disclosures. This approach, 

which is broadly consistent with current 

disclosure requirements, is intended to 

maximize transparency by ensuring that 

disclosure data is readily accessible to 

market participants while reducing 

burden on TLAC HCs by permitting a 

certain level of discretion in terms of 

how and where data are disclosed. 

3. Specific Disclosure Requirements 

The purpose of the proposed 

disclosure requirement is to display in 

an organized fashion the priority of a 

TLAC HC’s creditors. TLAC HCs may 

alter the formatting of the template to 

conform to publishing styles used by the 

TLAC HCs. However, the text set forth 

in the template must be used by the 

TLAC HC. 

Table 1 to § 252.66, ‘‘Creditor ranking 

for resolution entity,’’ would require a 

TLAC HC to disclose information 

regarding the TLAC HC’s creditor 

ranking individually and in aggregate at 

the TLAC HC’s resolution entity. 

Specifically, the table would require a 

TLAC HC to identify and quantify 

liabilities and outstanding equity 

instruments that have the same or a 

junior ranking compared to all of the 

TLAC HC’s eligible LTD, ranked by 

seniority in the event of resolution and 

by remaining maturity for instruments 

that mature. 

Question 64: To what extent do the 

disclosure tables proposed increase the 

likelihood that market participants fully 

understand the creditor hierarchy? 

Should the Board additionally require 

all Category II, III, and IV covered 

entities to provide the proposed 

disclosures? 

Question 65: Should the Board 

require a similar disclosure for liabilities 

of material subgroup entities of a TLAC 

HC? 

Question 66: What information, if 

any, that could be subject to disclosure 

under the proposal might be 

confidential business information that a 

TLAC HC should not be required to 

disclose? If there is any such 

information, should the Board provide 

the ability for a TLAC HC to not disclose 

particular information that is 

confidential business information, as is 

provided in 12 CFR 217.62(c)? 


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89Covered entity statistics are from the FR Y–9C 

as of March 31, 2023. Total covered IDI assets are 

from the Call Report as of March 31, 2023. Both 

reflect estimated effects of changes in organizational 

structure (e.g., mergers) through June 1, 2023. 

90For purposes of the aggregate analysis in this 

section, the number of covered IDIs does not 

include IDIs that are fully consolidated subsidiaries 

of other covered IDIs. 

91 In addition to the IDI subsidiaries of non-GSIB 

LBOs that are newly made subject to LTD 

requirements under the provisions of the proposal, 

there are 6 IDI subsidiaries of IHCs owned by 

foreign GSIBs that would become subject to new 

internal LTD requirements under the proposal. 

These IDI subsidiaries of foreign GSIB IHCs held a 

combined $821 billion in total assets as of March 

31, 2023. These IDIs are not separately included in 

the analysis population since the proposal does not 

change the nature or quantum of LTD that already 

apply at the parent IHC level for these IDIs. 

E. Reservation of Authority 

In addition, the proposed rule would 

reserve the authority for the Board to 

require a TLAC company to maintain 

eligible LTD or TLAC instruments that 

are greater than or less than the 

minimum requirement currently 

required by the rule under certain 

circumstances. This reservation of 

authority would ensure that the Board 

could require a company entity to hold 

additional LTD or TLAC instruments if 

the company poses elevated risks that 

the rule seeks to address. 

F. Technical Changes To Accommodate 

New Requirements 

The Board also proposes to make 

technical changes to simplify the 

regulation text, where possible. Among 

other things, these technical changes 

would (i) move definitions that 

currently are shared between subparts G 

and P of Regulation YY to the common 

definition section in section 252.2 of 

Regulation YY; (ii) move the transition 

provisions for the certification provided 

by covered IHCs to the transition section 

of the TLAC rule; and (iii) eliminate 

instances where the regulation text 

referred to a number of years and a 

number of days, as not all years have 

365 days. These changes are not 

intended to affect the substance of the 

rule. 

X. Economic Impact Assessment 

A. Introduction and Scope of 

Application 

The proposed rule would increase the 

amount of loss absorbing capacity in the 

event a covered IDI fails, thereby 

reducing costs to the DIF and increasing 

the likelihood of least-cost resolutions 

in which all deposits are transferred to 

an acquiring entity. As noted below, the 

experience in recent bank failures 

suggests that these benefits could be 

substantial. 

The agencies examined the benefits 

and costs of the proposed rule. The 

economic analysis discussed here 

examines the proposal with an 

emphasis on a steady-state perspective, 

meaning that it evaluates the long run 

effect of the fully phased-in 

requirement. Because current borrowing 

practices of covered entities and 

covered IDIs may not be representative 

of long run behavior, the agencies 

consider the phased-in requirement 

relative to two alternative assumptions 

about the level of LTD that covered 

entities and covered IDIs would choose 

to maintain in the absence of the 

proposal. One approach (the 

‘‘incremental shortfall approach’’) 

assumes that the current reported 

principal amount of LTD issuance at 

covered entities and covered IDIs is a 

reasonable proxy for the levels of such 

debt that would be maintained in future 

periods in the absence of the proposed 

rule. An alternate approach (the ‘‘zero 

baseline approach’’) assumes that 

covered entities and covered IDIs 

would, in the absence of the proposed 

rule, choose to maintain no instruments 

that satisfy the proposed rule’s 

requirements in future periods. Under 

both forms of analysis, the agencies 

conclude that the proposal is likely to 

moderately increase funding costs for 

covered entities and covered IDIs 

because LTD—which is generally more 

expensive than the short-term funding 

that the agencies anticipate it would 

replace—would be required as part of 

the funding structure of a covered entity 

or covered IDI. 

Under the incremental shortfall 

approach, the estimated steady-state 

cost of the proposal would derive from 

the additional LTD the covered entities 

would need to issue to meet any longterm shortfalls, which as described 

below would imply only a modest 

increase in funding costs. Under the 

zero baseline approach, the steady-state 

cost of the proposal is the anticipated 

cost associated with the full estimated 

amount of LTD that would be currently 

required if the regulation were fully 

phased-in. Under this more conservative 

zero baseline approach, the estimated 

decrease in profitability would be 

greater than under the incremental 

shortfall approach, though, as described 

below, the decrease is estimated to be 

moderate. 

The primary benefit of the proposed 

rule is that it supports wider options for 

the orderly resolution of covered 

entities and covered IDIs in the event of 

their failure. Loss-absorbing LTD may 

facilitate the ability of the FDIC to 

resolve an IDI in a manner that 

minimizes loss to the DIF. By expanding 

resolution options available to 

regulators, the LTD requirement may 

also reduce the need to rely on mergerbased resolutions that can potentially 

increase the systemic footprint of the 

acquiring institution or that may raise 

other types of concerns, such as those 

related to safety and soundness or 

consumer issues. 

The proposed LTD requirement 

would apply to Category II, III, and IV 

banking organizations, including (i) IDIs 

with at least $100 billion in total 

consolidated assets that are 

consolidated by a covered entity or are 

subsidiaries of a foreign GSIB, and their 

affiliated IDIs and, (ii) IDIs with at least 

$100 billion in total consolidated assets 

that are not controlled subsidiaries of a 

further parent entity (mandatory 

externally issuing IDIs), and their 

affiliated IDIs, and (iii) IDIs with at least 

$100 billion in total consolidated assets 

and (a) that are consolidated 

subsidiaries of a company that is not a 

covered entity, a U.S. GSIB or a foreign 

GSIB subject to the TLAC rule, or (b) 

that are controlled but not consolidated 

by another company (permitted 

externally issuing IDIs) and the 

affiliated IDIs of the foregoing.89 As of 

June 1, 2023, top-tier companies that 

would become newly subject to LTD 

requirements under the proposal are 

projected to comprise 18 covered HCs, 

1 covered IHC, and 1 permitted 

externally issuing IDI. Accordingly, the 

agencies analyzed estimated measures 

of aggregate costs for these companies 

(the ‘‘analysis population’’). Within 

these organizations, there are 24 covered 

IDIs.90 In aggregate, IDIs consolidated by 

organizations that would be subject to 

external LTD requirements held a 

combined $5.3 trillion in total assets, 

with an average asset amount of $220 

billion, and the asset amounts ranged 

between $8 million and $690 billion.91

This impact assessment builds on 

organization-level analysis that focuses 

on the highest level of consolidation at 

which banking organizations within the 

scope of the proposal would be subject 

to its requirements. 

B. Benefits 

The benefits of this proposal fall into 

two broad categories. First, LTD 

provides a ‘‘gone-concern’’ benefit that 

mitigates the spillovers, dislocations, 

and welfare costs that could arise from 

the failure of a covered entity. As noted 

in section I.A.2, by augmenting lossabsorbing capacity, LTD can provide 

firms and banking regulators greater 

flexibility in responding to the failure of 

covered entities and covered IDIs. The 

availability of eligible LTD may increase 

the likelihood of an orderly resolution 

for an IDI that fails and thereby help 


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64550 Federal Register / Vol. 88, No. 180 / Tuesday, September 19, 2023 / Proposed Rules 

92 Deposit insurance already protects the access to 

financial services and assets of insured depositors. 

This protection would not change under the 

proposed rule. 

93See, e.g., Diamond and Dybvig (1983), and 

Gertler and Kiyotaki (2015). 

minimize costs to the DIF. Even where 

the amount of outstanding LTD is 

insufficient to absorb enough losses so 

that all depositor claims at the IDI are 

fully satisfied, the presence of such 

gone-concern loss-absorbing capacity 

would reduce potential costs to the DIF 

and may expand the range of resolution 

options available to policymakers. 

The recent failures of SVB, SBNY, and 

First Republic highlight the risks posed 

by the failure of a covered IDI, including 

systemic contagion, as well as the 

challenges that the FDIC can face in 

executing an orderly resolution for 

covered IDIs. This proposal, if it had 

been in place and fully-phased-in when 

these failures occurred, would have 

provided billions of dollars of loss 

absorbing capacity. The agencies believe 

that the presence of a substantial layer 

of liabilities that absorbs losses ahead of 

uninsured depositors could have 

reduced the likelihood of those 

depositors running, might have 

facilitated resolution options that were 

not otherwise available, and could have 

made systemic risk determinations 

unnecessary. 

Second, LTD provides a ‘‘goingconcern’’ benefit by supporting 

resilience of covered entities and 

covered IDIs, further promoting 

financial stability. The proposed LTD 

requirement would improve the 

resilience of covered entities and 

covered IDIs by enhancing the stability 

of their funding profiles. Further, 

investors in LTD could also exercise 

market discipline over issuers of LTD, 

supporting market signals that will be of 

value to both regulators and market 

participants. From either perspective, 

the increased range of options for 

resolution resulting from the proposal 

could help to alleviate the possible 

contagion effects of one or more covered 

entities approaching default. This 

section examines these potential 

benefits in further detail. 

1. Benefits of LTD-Enhanced Orderly 

Resolutions (Gone-Concern) 

If adopted, the proposed rule would 

help improve the likelihood that, in the 

event a covered IDI fails, a sufficient 

amount of non-deposit liabilities will be 

available to absorb losses that otherwise 

might be imposed on uninsured 

depositors in resolution (e.g., if LTD 

helps to enable whole bank resolution) 

and to potentially facilitate other 

resolution options without invoking the 

systemic risk exception. This includes 

increasing the likelihood of a least-cost 

resolution scenario in which all 

deposits can be transferred to the 

acquiring entity, thereby maintaining 

depositor access to financial services 

and supporting financial stability. The 

magnitude of these benefits in any 

future IDI resolution would depend on 

the extent of losses incurred by the 

failing institution and the extent of its 

reliance on uninsured deposits. As a 

general matter, achievement of these 

benefits, including the policy goals and 

any attendant effects on the DIF, may 

also be influenced by future regulatory 

developments and the operation of bank 

supervision and regulation more 

broadly. 

More specifically, the agencies 

examined three channels by which an 

LTD requirement may provide goneconcern economic benefit. 

First, the additional loss-absorbing 

capacity from LTD in resolution may 

increase the likelihood that some or all 

uninsured deposits are protected from 

losses, even under the least-cost test. 

This outcome can be beneficial because 

interruption of access to uninsured 

deposits and associated services, 

already harmful to deposit customers, 

may also have spillover effects that can 

adversely affect a broader set of 

economic activity (e.g., if businesses use 

uninsured deposits to conduct payroll 

service).92 Further, because the LTD 

requirement for covered entities and 

covered IDIs can expand regulators’ 

options to reduce or eliminate the 

potential losses to uninsured deposits, 

whether in ex-ante (market) expectation 

or in ex-post outcomes, the requirement 

may help to limit or reduce the risk of 

financial contagion, dislocations, and 

deadweight costs associated with the 

failure of a covered entity or covered 

IDI. 

Second, by providing additional lossabsorbing capacity, LTD may increase 

the likelihood that the least cost 

resolution option is one that does not 

involve a merger that results in a sizable 

increase in the systemic footprint or 

market concentration of the combined 

organization, thereby producing 

potential economic costs. By creating a 

substantially larger combined successor 

firm, a merger-based or sale-of-businessline acquisition by another large 

banking or nonbank financial firm may 

meaningfully increase the acquiring 

firm’s systemic footprint. While the 

existing regulatory and supervisory 

framework is designed to address the 

expansion of systemic footprints, there 

may be unexpected costs to be borne by 

the public. However, increasing the 

likelihood that a different solution is the 

least cost resolution option could result 

in policymakers avoiding transactions 

that could raise other concerns. 

Third, the loss-absorption afforded by 

LTD may lower the risk that multiple 

concurrent failures of covered entities or 

covered IDIs might occur and impose 

high costs on the DIF, necessitating 

higher assessments to refill it and 

potentially requiring other extraordinary 

actions to stabilize banking conditions. 

2. Strengthening Bank Resilience 

(Going-Concern Benefit) 

The agencies analyzed two channels 

for going-concern benefits of the 

proposed rule. First, the establishment 

of an LTD requirement and the 

associated increase in loss-absorbing 

capacity improves the funding stability 

of covered entities and covered IDIs and 

provides firms and banking regulators 

greater flexibility in resolution. These 

features in turn further reinforce 

confidence in the safety of deposits at 

U.S. covered IDIs. For example, LTD 

may increase the likelihood of whole 

bank resolutions of covered IDIs, in 

which all deposits are transferred to 

acquiring entities. In this way, the 

agencies believe the proposal may also 

reduce the risk of sudden, large, and 

confidence-related deposit withdrawals 

(commonly known as bank runs) at 

covered IDIs. Liquidity transformation, a 

core banking activity, can make banks 

vulnerable to bank runs that harm 

uninsured depositors and may have 

negative externalities on the financial 

system and broader economy.93 Market 

awareness of measures that improve 

resiliency or protect deposits from 

losses in resolution can reduce or 

eliminate the first-mover advantage that 

motivates depositors to run when their 

banks are distressed. It is therefore 

possible that the enhanced lossabsorbing capacity from LTD may, as 

discussed above, mitigate run risk for 

covered entities and covered IDIs. 

For the banking system, this 

strengthened resilience can reduce 

negative externalities associated with 

runs. Lowering the risk of runs at 

covered IDIs may reduce the risk of 

contagion, thereby reducing risk for the 

broader banking system. In addition, the 

increased resilience can reduce fire sale 

risk by discouraging bank runs on 

covered entities and covered IDIs that 

compel them to liquidate assets to meet 

withdrawals. The economic harms from 

these channels could be substantial for 

a run on a large banking organization. 

LTD requirements may deliver a 

significant reduction in run risk for 


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94See Lewrick et al. (2019). 

95The agencies’ analysis of steady-state costs 

(section X.C.2) as well as gone-concern and goingconcern benefits (sections X.B.1 and X.B.2) does not 

consider whether, or to what extent, deposit 

insurance assessments, or a change in the level of 

deposit insurance assessments, could have indirect 

effects on estimated costs and benefits of this 

proposal. 

96This is of particular importance for shortfall 

estimates, which can be more vulnerable to this 

measurement problem. 

97The agencies recognize that their Basel III 

reforms proposal would, if adopted, increase riskweighted assets across covered entities. The 

increased risk-weighted assets would lead 

mechanically to increased requirements for LTD 

under the LTD proposal. The increased capital that 

would be required under the Basel III proposal 

could also reduce the cost of various forms of debt 

for impacted firms due to the increased resilience 

that accompanies additional capital (which is 

sometimes referred to as the Modigliani-Miller 

offset). The size of the estimated LTD needs and 

costs presented in this section do not account for 

either of these potential effects of the Basel III 

proposal. 

98The agencies estimate current eligible external 

LTD outstanding using a variety of data sources. 

Unsecured holding company-issued LTD 

outstanding is estimated with issue-level data from 

the Mergent Fixed Income Securities Database 

(FISD), where available. Where FISD issue-level 

data are not available, the agencies compute proxies 

for existing LTD issued by holding companies using 

FR Y–9LP data. The agencies proxy for eligible IDIissued LTD using the lesser of long-term unsecured 

debt as recorded in the Call Reports and total 

external IDI-issued LTD reported in the Call Report 

data. The total current eligible debt estimated is 

therefore the sum of this proxy for external IDIissued unsecured LTD and total holding companyissued unsecured LTD. Working within the 

limitations of the data, this approach generally 

yields more conservative estimates for eligible 

external LTD outstanding compared to alternative 

definitions. 

covered IDIs, generating considerable 

benefits. 

Second, the proposed LTD 

requirement may enhance market 

discipline with respect to covered 

entities and covered IDIs, incentivizing 

prudent behavior. The proposed LTD 

requirement would represent a 

substantial liability on covered entities’ 

and covered IDIs’ balance sheets that is 

subordinated to deposits, subject to 

credible threat of default risk, and 

whose value may be ascertained readily 

from market prices. If eligible LTD 

becomes a somewhat more common 

source of funding relative to 

instruments held by less sophisticated 

creditors, then it may strengthen 

market-based incentives for covered 

entities and covered IDIs to moderate 

excessive risk-taking. There is some 

evidence that TLAC-eligible debt 

securities are increasing market 

discipline of GSIBs.94 LTD prices may 

also provide regulators and other 

stakeholders with valuable signals about 

the riskiness of covered entities and 

covered IDIs. 

The agencies believe that harnessing 

the power of markets to price LTD 

issued by covered entities and covered 

IDIs creates a mechanism for firms that 

take excess risks to appropriately face 

higher funding costs. These market 

disciplining effects are incremental to 

the risk sensitivity already present in 

DIF premiums. There is a substantial 

literature over recent decades exploring 

the potential for enhanced market 

discipline for large banks based on 

subordinated LTD. For example, 

DeYoung, Flannery, Lang and Sorescu 

(2001) argue that subordinated debt 

prices reflect the information available 

to market participants (such as public 

indicators of bank condition, 

management concerns, and potential 

expected loan losses). M. Imai (2007) 

shows that subordinated debt investors 

exerted market discipline over weak 

banks by requiring higher rates at 

weaker banks. Chen and Hasan (2011) 

show that subordinated debt 

requirements and bank capital 

requirements can be used as 

complements for mitigating moral 

hazard problems. The literature on 

subordinated bank debt does not always 

find historically that price signals from 

such debt led such banks to limit their 

growth or take action to improve their 

safety and soundness. The findings of 

the literature may also not be 

completely applicable because they 

generally consider more generic 

subordinated long debt, that is, without 

some of the key loss absorption features 

of eligible LTD under this proposal. 

The agencies note that the scope for 

these effects is uncertain for a number 

of reasons including but not limited to 

potential lack of understanding and 

experience among market participants 

with LTD-based protection for deposits. 

However, the agencies believe the 

increased resiliency and market 

discipline afforded by the proposed LTD 

requirements provide meaningful 

additional financial stability benefits. 

3. Changes in Deposit Insurance 

Assessments 

Under the FDIC’s current regulations, 

any issuance of additional LTD 

associated with the proposed rule could 

reduce deposit insurance assessments 

for the IDIs of covered entities. Given 

the current framework for deposit 

insurance pricing, the FDIC estimates 

that the proposed rule could result in 

reductions in deposit insurance 

assessments for the covered IDIs of 

approximately $800 million per year, in 

aggregate. In light of the recent failures 

of three large banks, however, the FDIC 

will consider revisions to its large bank 

pricing methodology, including the 

treatment of unsecured debt and 

concentrations of uninsured deposits.95

C. Costs 

1. LTD Requirements and Shortfalls 

The agencies analyzed the cost impact 

of the proposed rule for the analysis 

population. This section details that 

analysis. First, it approximates the 

proposed requirements for the analysis 

population. Second, given these 

requirements, it estimates the shortfalls 

in eligible external LTD currently 

outstanding among firms in the analysis 

population. Third, it estimates how 

these requirements would shift bank 

funding behavior and the consequences 

of those shifts on bank funding costs. 

Finally, it discusses the potential 

implications of these costs. 

Agency estimates of LTD 

requirements and shortfalls are based on 

organization-level time series averages 

for the Q4 2021–Q3 2022 period. More 

recent data are excluded from the 

sample. This is in part because shortfall 

estimates may be distorted by debt 

issuance carried out by covered entities 

and covered IDIs in anticipation of the 

rule following the Q4 2022 ANPR. 

Recent substitution away from deposits 

due to adverse banking conditions in 

early 2023 may also overstate the long 

run prominence of LTD in funding 

structures for these organizations. Time 

series averages are used to produce an 

estimate the agencies believe is more 

appropriate because it mitigates the 

variability in point-in-time cross section 

data.96

According to this methodology, staff 

estimate that the total principal value of 

external LTD required of firms in the 

analysis population, irrespective of 

existing LTD, would be approximately 

$250 billion. Among Category II and III 

covered entities, the total requirement 

would be approximately $130 billion. 

For Category IV covered entities and 

externally issuing IDIs, the aggregate 

requirement would be approximately 

$120 billion. These requirements will 

form the basis for the cost estimates 

under the zero baseline approach.97

For purposes of the incremental 

shortfall approach, the agencies estimate 

the level of future eligible LTD for the 

analysis population in the absence of 

the proposed rule as equal to the current 

level of outstanding LTD at the analysis 

population that is unsecured, has no 

exotic features, and is issued externally 

at any level of the organization (that is, 

either by a covered entity itself or a 

subsidiary IDI).98 Implicit in this 

definition is the assumption that over 

the long term, it will be costless to 


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64552 Federal Register / Vol. 88, No. 180 / Tuesday, September 19, 2023 / Proposed Rules 

99An implication of this and the other 

simplifying assumptions noted is that the proposed 

requirement that eligible external LTD generally be 

issued at the holding company level would be no 

costlier to covered entities than an alternative rule 

that would also allow firms to meet the external 

requirement with LTD issued externally out of IDIs. 

This may not always be true. Some covered entities 

might, if permitted, prefer to partially meet the 

requirement with external IDI debt, for example, if 

they believed such a choice could incrementally 

lower their LTD interest cost. The agencies believe 

the effect of such choices on cost, if any, are likely 

small in the long run, and may be one of many 

potential influences on the cost estimates under 

both the incremental shortfall and zero baseline 

approaches. 

100The market for external LTD was defined as 

all debt with a term (ignoring call features) of two 

years or longer in selected banking-related NAICS 

codes. The average term for these bonds is 

approximately seven years, and we assume banking 

organizations will generally call such debt one to 

three years prior to maturity. We therefore assume 

that the additional annual issuance needed is 

between one-fourth and one-sixth of the estimated 

LTD shortfall. 

101This is a simplifying assumption. Staff 

believes that results would be broadly similar if 

balance sheet expansion were modeled under 

reasonable assumptions about how the expansion 

would occur (e.g., investment selection) and 

funding opportunity costs. 

102See Alanis et al. (2015), Jacewitz and Pogach 

(2015). 

103For the analysis, yields on five-year debt are 

estimated for each firm in the analysis population 

as the sum of the average five-year CDS credit 

spread and the average yield on five-year 

Treasuries. CDS pricing data in this sample, 

provided by IHS Markit, use spreads on singlename contracts referencing holding companies. CDS 

data are available for only a subset of firms in the 

analysis population; when CDS pricing is 

unavailable, then averages for Category I–IV firms 

in the analysis population are used instead. The 

agencies utilize the average approach for externally 

issuing IDIs, for which CDS data is unavailable; this 

produces generally conservative estimates. The 

agencies obtained aggregate interest rate data for 

Treasuries and CD rates from the Federal Reserve 

Economic Data (FRED) website maintained by the 

Federal Reserve Bank of St. Louis. 

104 In recent years, these CD rates have been lower 

on average than one-month Treasury Bill yields, 

consistent with academic literature that studies the 

funding advantages of deposits. See Drechsler, 

Savov, and Schnabl (2017). 

105Existing LTD for covered entities and covered 

IDIs does not always include the specific features 

designed to facilitate loss absorption that are 

required under the proposed rule. Lewrick, Serena, 

and Turner (2019) and Lindstom and Osborne 

(2020) find that, in the United States and Europe, 

the ‘‘bail-in premium’’ on TLAC debt that includes 

such features is 15–45 basis points. The agencies 

did not include a bail-in premium in funding cost 

estimates because these costs appear to be small. 

The agencies estimate that including a 45 basis 

point bail-in premium would cause NIMs at 

covered companies to fall by an additional 0.5 to 

2 basis points. 

106After-tax funding cost increases are 

approximately 25 percent lower than the 

corresponding pre-tax value. 

substitute external holding companyissued debt for external IDI-issued debt, 

as well as to downstream resources from 

holding companies to IDIs through 

eligible internal debt securities, to fulfill 

the requirements of the proposed rule 

and general funding needs.99 It is 

assumed, in other words, that there are 

no additional costs for IDIs to maintain 

eligible internal debt securities to 

holding companies beyond those 

attributable to any external holding 

company LTD that may be passed 

through to IDIs. 

Based on averages for the Q4 2021–Q3 

2022 period, the agencies estimate 

under the incremental shortfall 

approach that some firms would need to 

issue additional eligible external LTD 

over the long term in order to comply 

with the proposed rule. Staff estimate 

that the aggregate shortfall under the 

incremental approach in the analysis 

population is approximately $70 billion. 

For Category II and III covered entities, 

this total shortfall is approximately $20 

billion. Among Category IV covered 

entities and externally issuing IDIs, the 

aggregate shortfall under the proposal is 

approximately $50 billion. 

The agencies estimate that current 

average annual LTD issuance by U.S. 

banking organizations (with an initial 

term of two years or greater but not 

necessarily satisfying all qualifying 

characteristics of eligible external LTD 

under the proposed rule) is 

approximately $230 billion, including 

$70 billion by non-Category I firms. 

Depending on the term of eligible 

external LTD used to meet requirements 

under the proposed rule and how firms 

use early call features of these 

securities, the agencies anticipate that 

the annual issuance market for banking 

organization LTD will have to increase 

by five to seven percent.100 If the market 

for LTD is defined to exclude the 

issuance conducted by Category I firms, 

then the current non-GSIB annual 

issuance market would have to increase 

by sixteen to 24 percent. Note that, in 

both cases, the agencies’ projections of 

the necessary eligible external LTD 

market expansion are based on their 

estimates of shortfalls under the 

proposal. The true growth in eligible 

external LTD issuance under the 

proposed rule could be somewhat 

greater than the estimated shortfall, 

especially in the long run, for several 

reasons (including the likely use of 

management buffers) explored later. In 

the next subsection of this analysis, the 

agencies expand upon these results to 

assess the funding cost impact of the 

proposal. 

2. Steady-State Funding Cost Impact 

Building on the requirement and 

shortfall estimates described above, the 

agencies evaluated the impact of the 

proposal on steady-state funding costs. 

Because LTD is generally more 

expensive than the short-term funding 

banking organizations could otherwise 

use, the proposal is likely to raise 

funding costs in the long run. This 

analysis assumes that firm assets are 

held fixed, and the proposed rule 

therefore permanently shifts firm 

liabilities to include less short-term 

funding and more LTD.101 The 

estimated change in funding costs is the 

estimated quantity of required new 

eligible external LTD issuance 

multiplied by the estimated increased 

funding cost per dollar of issuance (i.e., 

the difference between the long-term 

and short-term funding rates). For the 

purposes of this analysis, interest rates 

for individual funding sources (e.g., 

short-term or long-term debt) are 

assumed to be unaffected by funding 

structure changes. For example, the 

analysis does not allow for possible 

reductions in the cost of uninsured 

deposits resulting from the additional 

layer of loss absorbing LTD (which may 

be material).102 The steady-state setting 

abstracts from continuing adjustment 

costs that may arise from maintaining 

eligible external LTD at the required 

level, for instance through retirement 

and reissuance of eligible external LTD 

over time. Accordingly, the analysis also 

does not consider short-term transition 

costs. 

Based on market observables from the 

post-2008 period, the agencies estimate 

the eligible external LTD funding cost 

spread as the difference between yields 

on five-year debt and the national 

aggregate interest rate on bank nonjumbo three-month certificates of 

deposit (CDs).103 104 The five-year debt is 

more expensive than three-month CDs 

because it includes premiums for term 

and for credit risk (reflecting its 

structural subordination in the capital 

structure).105 Over time, the premium 

for subordination will reflect the credit 

risk of the individual covered firms, 

while the premium for term will also 

reflect changes in the general interest 

rate markets. In the agencies’ steady 

state analysis, about one third of the 

cost of the LTD requirement is 

attributable to subordination, with the 

remainder attributable to the term 

premium. 

The agencies estimate that the eligible 

external LTD requirement would 

increase pre-tax annual steady-state 

funding costs for the analysis 

population by $1.5 billion in the 

incremental shortfall approach.106 The 

agencies estimate that this cost would 

represent a permanent three-basis point 

decline in aggregate net interest margins 


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107For simplicity, the agencies assume that 

pricing any eligible internal debt securities would 

be consistent with market pricing and terms for 

eligible external LTD (including but not limited to 

the eligibility requirements under the proposal). 

108 In addition to the total increase in funding 

costs, the agencies also estimate the credit risk 

component of these funding costs. Because credit 

spreads reflect the market expectation of losses that 

would be absorbed by eligible LTD investors in per 

annum terms, the component speaks directly to the 

proposal’s expansion of loss absorbing capacity. In 

the incremental shortfall (zero baseline) approach, 

the annual steady-state interest expenditure on 

eligible LTD due to credit risk would be $550 

million ($2.1 billion). 

109The incremental shortfall approach also does 

not account for the presence of management buffers 

which are likely to be nonzero. It should be noted 

that, among other purposes, management buffers 

can help covered entities and covered IDIs mitigate 

recurring LTD issuance and retirement costs. These 

additional costs are not estimated by the agencies. 

110The benefits of the rule, discussed above, may 

also be larger to the extent firms would have chosen 

lower LTD levels in the future in the absence of the 

rule. 

111However, as discussed in section X.C.1, the 

agencies’ estimated eligible external LTD shortfall 

is a small to moderate fraction of the average total 

annual bank LTD issuance. 

112 Due to practical restrictions on call eligibility, 

a portion of LTD issued in this fashion at 

unattractive rates may remain on the balance sheets 

of covered entities and covered IDIs for a few years. 

(NIMs).107 For Category II and III 

covered entities, this estimated pre-tax 

annual funding cost increase is 

approximately $460 million, 

representing a two-basis point 

permanent decline in NIMs. Among 

Category IV covered entities and 

externally issuing IDIs, the estimated 

increase in pre-tax annual funding costs 

based on the incremental shortfall 

approach is approximately $1.1 billion, 

representing a five-basis point 

permanent decline in NIMs. 

Under the zero baseline approach, 

based on total eligible external LTD 

requirement quantities, the agencies 

estimate that the proposal would 

increase pre-tax annual steady-state 

funding costs by approximately $5.6 

billion for the analysis population.108

Staff estimate that this approach would 

result in a permanent eleven-basis point 

decline in aggregate NIMs. Among 

Category II and III covered entities, this 

estimated pre-tax annual funding cost 

increase is approximately $2.7 billion, 

representing a ten-basis point 

permanent decline in NIMs. For 

Category IV covered entities and 

externally issuing IDIs, this estimated 

pre-tax increase in annual funding costs 

based on the zero baseline approach is 

$2.9 billion, representing a twelve-basis 

point permanent decline in NIMs. 

The agencies believe that the funding 

cost impact of the proposal is likely 

between the lower-end estimate from 

the incremental shortfall approach and 

the higher-end estimate from the zero 

baseline approach. The incremental 

shortfall approach may provide a more 

accurate near-term perspective on 

funding cost impact. However, even in 

the short run, this may underestimate 

the costs because the proxy for eligible 

external LTD in this analysis may not 

satisfy all of the proposal’s requirements 

for eligible external LTD and, therefore, 

may overestimate the quantity of truly 

eligible external LTD outstanding 

among covered entities.109 In the long 

run, current funding structures may 

differ substantially from what firms 

would choose in the absence of the rule. 

The upper range of estimates based on 

total required eligible external LTD 

quantities under the zero baseline 

approach is in deference to, among 

other considerations, the possibility that 

prohibiting covered entities and covered 

IDIs from maintaining lower levels of 

LTD in the future may carry additional 

funding costs.110

An increase in funding costs 

associated with the rule may be 

absorbed to varying degrees by 

stakeholders of covered entities and 

covered IDIs, including equity holders, 

depositors, borrowers, employees, or 

other stakeholders. Covered entities and 

covered IDIs could seek to offset the 

higher funding costs from an LTD 

requirement by lowering deposit rates or 

increasing interest rates on new loans. 

Alternatively, the higher funding costs 

could indirectly affect covered entities 

and covered IDIs’ loan growth, or result 

in some migration of banking activity 

from covered entities and covered IDIs 

to other banks or nonbanks. The modest 

to moderate range of funding cost 

impacts presented above suggests a 

similarly limited scope for these types 

of indirect effects. 

3. Transition Effects 

This analysis does not attempt to 

quantitatively assess the proposal’s 

phase-in effects, such as changes in 

asset holdings or market conditions for 

long-term unsecured debt instruments, 

because the agencies do not possess the 

necessary information to do so. 

Estimates of the phase-in effects depend 

upon the future financial characteristics 

of each covered entity and covered IDI, 

future economic and financial 

conditions, and the decisions and 

behaviors of covered entities and 

covered IDIs. However, the agencies 

believe that, if the proposal is phasedin gradually, the transition-related costs 

and risks of the proposal’s adoption are 

likely to be small relative to long-run 

effects. These considerations 

notwithstanding, this subsection 

provides a brief overview of potential 

phase-in effects. 

Due to the considerable scope of the 

proposal, there is a risk that efforts by 

covered entities and covered IDIs to 

issue a large volume of LTD over a 

limited period could strain the market 

capacity to absorb the full amount of 

such issuance if issuance volume 

exceeds debt market appetite for LTD 

instruments.111 If banking organizations 

are unable to spread out their issuance 

activity to avoid this problem, they may 

be forced to issue a significant quantity 

of LTD at relatively higher yields.112

These costs could be exacerbated if they 

coincide with periods of adverse 

funding market conditions such as those 

that followed recent bank failures. It is 

also worth noting that a strain on debt 

markets due to the proposal phase-in 

may also impose negative funding 

externalities on non-covered 

institutions, both inside and outside of 

the financial sector. 

Other simplifying assumptions that 

are appropriate for the long run 

perspective of the funding cost analysis 

may be less suited for the study of 

phase-in effects. Recall that the funding 

cost methodology treats the proposed 

requirement as a liability side 

substitution with assets held fixed. In 

the short run, covered entities are in fact 

likely to expand their balance sheets, to 

at least some degree, as a result of the 

proposed requirements. Under some 

circumstances this expansion could 

impose upward pressure on leverage 

ratios (presumably temporary). It may 

also take some time for covered entities 

and covered IDIs to invest the proceeds 

from sizable LTD issuance productively, 

which could add to the phase-in costs. 

Other steady-state simplifying 

assumptions about the migration of 

external LTD among entities within 

organizations and the prepositioning of 

resources at IDIs are likely to understate 

short-term disruption due to the 

proposal. Organizations most exposed to 

phase-in costs of this kind are those 

with limited existing external LTD 

issued out of their holding companies 

and those with limited internal LTD 

between their IDIs and holding 

companies. 

4. Conclusion 

The discussion in this section 

highlights a range of gone-concern and 

going-concern benefits that could derive 

from the LTD required by the proposal: 

providing additional coverage for losses 

and greater optionality in resolution 

events, and alleviating some of the 

pressures that could arise as a covered 

entity comes under significant stress. 


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64554 Federal Register / Vol. 88, No. 180 / Tuesday, September 19, 2023 / Proposed Rules 

113 44 U.S.C. 3501 et seq. 

The extent of these benefits is roughly 

proportional to the overall lossabsorbing capability of the LTD that the 

rule would add. As discussed 

previously, the face value of additional 

LTD that would be available for loss 

absorption is estimated to be 

approximately between $70 billion and 

$250 billion. For comparison, the 

current level of aggregate tier 1 capital 

at covered entities that can absorb 

going-concern losses is approximately 

$470 billion. 

In addition, the loss-absorbing 

capacity provided by the required LTD 

may provide savings to the DIF in the 

future relative to resolutions conducted 

without benefit of the additional loss 

absorbing capacity of the long term debt 

required by the proposed rule. 

The direct costs of the proposal derive 

from the requirements that the LTD be 

both subordinated and longer term than 

current sources of funding. In total, 

these costs are estimated to be moderate. 

It is possible that alternate means exist 

to raise loss absorbing resources, such as 

subordinated debt of a shorter term, that 

could be less costly to covered entities 

and covered IDIs. Compared to the LTD 

requirements of the proposed rule, 

however, such alternatives would likely 

be less effective in providing a stable 

enough source of loss absorption to 

achieve the objectives of the proposal. 

The agencies have concluded that the 

direct loss absorption capacity of the 

LTD combined with the meaningful 

intangible benefits of the LTD described 

in this section justify the overall cost of 

the proposal. 

5. Bibliography 

Alanis, Emmanuel, Hamid Beladi, and 

Margot Quijano. ‘‘Uninsured deposits as 

a monitoring device: Their impact on 

bond yields of banks.’’ Journal of 

Banking & Finance 52 (2015): 77–88. 

Chen, Yehning, and Iftekhar Hasan. 

‘‘Subordinated debt, market discipline, 

and bank risk.’’ Journal of Money, Credit 

and Banking 43.6 (2011): 1043–1072. 

DeYoung, Robert, et al. ‘‘The information 

content of bank exam ratings and 

subordinated debt prices.’’ Journal of 

Money, Credit and Banking (2001): 900– 

925. 

Diamond, Douglas W. and Philip H. Dybvig. 

‘‘Bank Runs, Deposit Insurance, and 

Liquidity.’’ Journal of Political Economy 

91.3 (1983): 401–419. 

Gertler, Mark and Nobuhiro Kiyotaki. 

‘‘Banking, Liquidity, and Bank Runs in 

an Infinite Horizon Economy.’’ American 

Economic Review 105.7 (2015): 2011– 

2043. 

Imai, Masami. ‘‘The emergence of market 

monitoring in Japanese banks: Evidence 

from the subordinated debt market.’’ 

Journal of Banking & Finance 31.5 

(2007): 1441–1460. 

Jacewitz, Stefan, and Jonathan Pogach. 

‘‘Deposit rate advantages at the largest 

banks.’’ Journal of Financial Services 

Research 53 (2018): 1–35. 

Lewrick, Ulf, Jose ́ Maria Serena, and Grant 

Turner. ‘‘Believing in bail-in? Market 

discipline and the pricing of bail-in 

bonds.’’ BIS Working Paper 831 (2019). 

XI. Regulatory Analysis 

A. Paperwork Reduction Act 

Certain provisions of the proposed 

rule contain ‘‘collection of information’’ 

requirements within the meaning of the 

Paperwork Reduction Act of 1995 

(PRA).113 In accordance with the 

requirements of the PRA, the agencies 

may not conduct or sponsor, and a 

respondent is not required to respond 

to, an information collection unless it 

displays a currently valid Office of 

Management and Budget (OMB) control 

number. The information collection 

requirements contained in this joint 

notice of proposed rulemaking only 

pertain to information collections 

administered by the Board; the OCC and 

FDIC have reviewed the proposal and 

certify that no information collection 

administered by either agency are 

implicated by the proposal. The Board 

reviewed the proposed rule under the 

authority delegated to the Board by 

OMB. 

The proposed rule contains revisions 

to current information collections 

subject to the PRA. To implement these 

requirements, the Board would revise 

and extend for three years the (1) 

Financial Statements for Holding 

Companies (FR Y–9; OMB No. 7100– 

0128), and (2) Reporting, 

Recordkeeping, and Disclosure 

Requirements Associated with 

Regulation YY (FR YY; OMB No. 7100– 

0350). In addition, the agencies, under 

the auspices of the FFIEC, would also 

propose related revisions to the 

Consolidated Reports of Condition and 

Income (Call Reports) (FFIEC 031, 

FFIEC 041, and FFIEC 051; OMB Nos. 

1557–0081; 3064–0052, and 7100– 

0036). The proposed revisions to the 

FFIEC reports will be addressed in a 

separate Federal Register notice. 

Comments are invited on the 

following: 

(a) Whether the collections of 

information are necessary for the proper 

performance of the agencies’ functions, 

including whether the information has 

practical utility; 

(b) The accuracy of the agencies 

estimates of the burden of the 

information collections, including the 

validity of the methodology and 

assumptions used; 

(c) Ways to enhance the quality, 

utility, and clarity of the information to 

be collected; 

(d) Ways to minimize the burden of 

the information collections on 

respondents, including through the use 

of automated collection techniques or 

other forms of information technology; 

and 

(e) Estimates of capital or start-up 

costs and costs of operation, 

maintenance, and purchase of services 

to provide information. 

Commenters may submit comments 

regarding any aspect of the proposed 

rule’s collections of information, 

including suggestions for reducing any 

associated burdens, to the addresses 

listed under the ADDRESSES heading of 

this Notice. All comments will become 

a matter of public record. A copy of the 

comments may also be submitted to the 

OMB desk officer for the agencies: By 

mail to U.S. Office of Management and 

Budget, 725 17th Street NW, #10235, 

Washington, DC 20503; by facsimile to 

202–395–5806; or by email to: oira_

submission@omb.eop.gov, Attention, 

Federal Banking Agency Desk Officer. 

Proposed Revisions, With Extension, of 

the Following Information Collections 

(Board Only) 

(1) Collection title: Financial 

Statements for Holding Companies. 

Collection identifier: FR Y–9C, FR Y– 

9LP, FR Y–9SP, FR Y–9ES, and FR Y– 

9CS. 

OMB control number: 7100–0128. 

General description of report: The FR 

Y–9 family of reporting forms continues 

to be the primary source of financial 

data on holding companies (HCs) on 

which examiners rely between on-site 

inspections. Financial data from these 

reporting forms is used to detect 

emerging financial problems, review 

performance, conduct pre-inspection 

analysis, monitor and evaluate capital 

adequacy, evaluate HC mergers and 

acquisitions, and analyze an HC’s 

overall financial condition to ensure the 

safety and soundness of its operations. 

The FR Y–9C, FR Y–9LP, and FR Y–9SP 

serve as standardized financial 

statements for the consolidated HC. The 

Board requires HCs to provide 

standardized financial statements to 

fulfill the Board’s statutory obligation to 

supervise these organizations. The FR 

Y–9ES is a financial statement for HCs 

that are Employee Stock Ownership 

Plans. The Board uses the FR Y–9CS (a 

free-form supplement) to collect 

additional information deemed to be 

critical and needed in an expedited 

manner. HCs file the FR Y–9C on a 

quarterly basis, the FR Y–9LP quarterly, 

the FR Y–9SP semiannually, the FR Y– 


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114The OCC bases its estimate of the number of 

small entities on the SBA’s size standards for 

commercial banks and savings associations, and 

trust companies, which are $850 million and $47 

million, respectively. Consistent with the General 

Principles of Affiliation, 13 CFR 121.103(a), the 

OCC counts the assets of affiliated banks when 

determining whether to classify an OCC-supervised 

bank as a small entity. The OCC used December 31, 

2022, to determine size because a ‘‘financial 

institution’s assets are determined by averaging the 

assets reported on its four quarterly financial 

statements for the preceding year.’’ See, FN 8 of the 

SBA Table of Size Standards. 

9ES annually, and the FR Y–9CS on a 

schedule that is determined when this 

supplement is used. 

Frequency: Quarterly, semiannually, 

and annually. 

Affected Public: Businesses or other 

for-profit. 

Respondents: BHCs, SLHCs, securities 

holding companies (SHCs), and IHCs 

(collectively, holding companies (HCs)). 

Estimated number of respondents: FR 

Y–9C (non-advanced approaches 

holding companies with less than $5 

billion in total assets): 107; FR Y–9C 

(non-advanced approaches with $5 

billion or more in total assets) 236; FR 

Y–9C (advanced approached holding 

companies): 9; FR Y–9LP: 411; FR Y– 

9SP: 3,596; FR Y–9ES: 73; FR Y–9CS: 

236. 

Estimated average hours per response: 

FR Y–9C (non-advanced approaches 

holding companies with less than $5 

billion in total assets): 36.16; FR Y–9C 

(non-advanced approaches holding 

companies with $5 billion or more in 

total assets): 45.26, FR Y–9C (advanced 

approached holding companies): 50.54; 

FR Y–9LP: 5.27; FR Y–9SP: 5.45; FR Y– 

9ES: 0.50; FR Y–9CS: 0.50. 

Estimated annual burden hours: FR 

Y–9C (non advanced approaches 

holding companies with less than $5 

billion in total assets): 15,476; FR Y–9C 

FR Y–9C (non advanced approaches 

holding companies with $5 billion or 

more in total assets): 42,725. FR Y–9C 

(advanced approaches holding 

companies): 1,819; FR Y–9LP: 8,664; FR 

Y–9SP: 39,196; FR Y–9ES: 37; FR Y– 

9CS: 472. 

Current Actions: The proposed rule 

would make certain revisions to the FR 

Y–9C, Schedule HC–R, Part I, 

Regulatory Capital Components and 

Ratios, to amend the instructions to 

allow covered entities to publicly report 

information regarding their amounts of 

eligible LTD. Specifically, the 

instructions for item 54 would be 

amended to require covered entities to 

report outstanding eligible LTD. In 

addition, the proposal would create a 

new line item for a covered entity and 

a U.S. GSIB to report the subset of 

eligible LTD that has a maturity of 

between one year and two years. 

The proposed rule would also create 

a new line item and instruction to allow 

U.S. GSIBs to report certain information 

regarding their TLAC requirements. 

Specifically, a new line item would be 

created to allow a U.S. GSIB to report 

its deductions of investments in own 

other TLAC liabilities. The proposal 

would also make technical amendments 

to the FR Y–9C instructions relating to 

the calculation of the TLAC buffer (item 

62a). The proposal also would amend 

line items that exclude ‘‘additional tier 

1 minority interests’’ to exclude instead 

‘‘tier 1 minority interests’’ to match the 

corresponding provision in the existing 

TLAC rule. The revisions are proposed 

to be effective as of the effective date of 

the final rule resulting from this 

proposal. 

The Board estimates that revisions to 

the FR Y–9C would increase the 

estimated annual burden by 316 hours. 

The respondent count for the FR Y–9C 

would not change because of these 

changes. The draft reporting forms and 

instructions are available on the Board’s 

public website at https://

www.federalreserve.gov/apps/ 

reportingforms. 

(2) Collection title: Reporting, 

Recordkeeping, and Disclosure 

Requirements Associated with 

Regulation YY. 

Collection identifier: FR YY. 

OMB control number: 7100–0350. 

General description of report: Section 

165 of the Dodd-Frank Act requires the 

Board to implement Regulation YY— 

Enhanced Prudential Standards (12 CFR 

part 252) for BHCs and FBOs with total 

consolidated assets of $250 billion or 

more. Section 165 of the Dodd-Frank 

Act also authorizes the Board to impose 

such standards to BHCs and FBOs with 

greater than $100 billion and less than 

$250 billion in total consolidated assets 

if certain conditions are met. The 

enhanced prudential standards include 

risk-based and leverage capital 

requirements, liquidity standards, 

requirements for overall risk 

management (including establishing a 

risk committee), stress test 

requirements, and debt-to-equity limits 

for companies that the Financial 

Stability Oversight Council (FSOC) has 

determined pose a grave threat to 

financial stability. 

Frequency of Response: Annual, 

semiannual, quarterly, one-time, and 

event-generated. 

Affected Public: Business or other forprofit. 

Respondents: State member banks, 

U.S. BHCs, nonbank financial 

companies, FBOs, IHCs, foreign SLHCs, 

and foreign nonbank financial 

companies supervised by the Board. 

Estimated number of respondents: 63. 

Estimated average hours per response 

for new disclosures: 20. 

Total estimated change in burden 

hours: 330. 

Estimated annual burden hours: 

28,082. 

Current Actions: The proposal would 

make certain revisions to the FR YY 

information collection. Specifically, the 

proposal would require that U.S. GSIBs 

disclose qualitative and quantitative 

information regarding their creditor 

rankings. See section X.D of this 

Supplementary Information for a more 

detailed discussion of the required U.S. 

GSIB disclosures regarding creditor 

rankings. The revised disclosure 

requirement is found in section 252.66 

of the proposed rule. Section 252.164 of 

the proposed rule would require each 

top-tier FBO of an IHC subject to the 

proposed rule or the existing TLAC rule 

to submit to the Board a certification 

indicating whether the planned 

resolution strategy of the top-tier FBO 

involves the U.S. IHC or its subsidiaries 

entering resolution, receivership, 

insolvency, or similar proceedings in 

the United States. The rule requires the 

top-tier FBO to update this certification 

when its resolution strategy changes. 

B. Regulatory Flexibility Act 

OCC 

The Regulatory Flexibility Act (RFA), 

5 U.S.C. 601 et seq., requires an agency, 

in connection with a proposed rule, to 

prepare an Initial Regulatory Flexibility 

Analysis describing the impact of the 

rule on small entities (defined by the 

Small Business Administration (SBA) 

for purposes of the RFA to include 

commercial banks and savings 

institutions with total assets of $850 

million or less and trust companies with 

total assets of $47 million or less) or to 

certify that the proposed rule would not 

have a significant economic impact on 

a substantial number of small entities. 

The OCC currently supervises 

approximately 661 small entities.114

The OCC estimates that the proposed 

rule would impact none of these small 

entities, as the scope of the rule only 

applies to banking organizations with 

total assets of at least $100 billion. 

Therefore, the OCC certifies that the 

proposed rule would not have a 

significant economic impact on a 

substantial number of small entities. 


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115See 13 CFR 121.201 (NAICS codes 522110– 

522210). 

116 In any event, consistent with the SBA’s 

General Principles of Affiliation, the Board may 

count the assets of affiliated IDIs together when 

determining whether to classify a state member 

bank that could be subject to the proposed rule by 

virtue of an affiliate relationship with an IDI with 

$100 billion or more in total assets as a small entity 

for purposes of the RFA. See 13 CFR 121.103(a). In 

such a case, the combined assets of the affiliated 

IDIs would far exceed the $850 million total asset 

threshold below which a banking organization 

qualifies as a small entity. 117 5 U.S.C. 601 et seq. 

Board 

The Regulatory Flexibility Act (RFA), 

5 U.S.C. 601 et seq., requires an agency 

to consider the impact of its proposed 

rules on small entities. In connection 

with a proposed rule, the RFA generally 

requires an agency to prepare an Initial 

Regulatory Flexibility Analysis (IRFA) 

describing the impact of the rule on 

small entities, unless the head of the 

agency certifies that the proposed rule 

will not have a significant economic 

impact on a substantial number of small 

entities and publishes such certification 

along with a statement providing the 

factual basis for such certification in the 

Federal Register. 

The Board is providing an IRFA with 

respect to the proposed rule. For the 

reasons described below, the Board does 

not believe that the proposal will have 

a significant economic impact on a 

substantial number of small entities. 

The Board invites public comment on 

all aspects of this IRFA. 

1. Reasons Action Is Being Considered 

The proposed rule would require 

covered entities and covered IDIs to 

maintain minimum levels of LTD 

funding in order to improve the 

resolvability of these firms in light of 

the risks that are posed when a covered 

entity or covered IDI fails. Further 

discussion of the rationale for the 

proposal is provided in section I.A of 

this SUPPLEMENTARY INFORMATION. 

2. Objectives of the Proposed Rule 

The agencies’ objective in proposing 

this rule is to expand the options 

available to policymakers in resolving a 

failed covered entity and its covered IDI 

subsidiaries and thereby increase the 

likelihood that such a resolution will 

occur in an orderly fashion. By 

increasing the prospects for orderly 

resolutions of a failed covered entity 

and its covered IDI subsidiaries, the 

proposed rule is also intended to 

achieve the agencies’ objective of 

promoting resiliency among banking 

organizations and safeguarding stability 

in the financial system. 

3. Description and Estimate of the 

Number of Small Entities Impacted 

The proposed rule would only apply 

to covered entities, which are Category 

II, III, and IV BHCs and SLHCs, as well 

as Category II, III, and IV U.S. IHCs of 

FBOs that are not global systemically 

important FBOs. The proposal would 

also apply to covered IDIs, which are 

IDIs that are not consolidated 

subsidiaries of U.S. GSIBs and that (i) 

have at least $100 billion in 

consolidated assets or (ii) are affiliated 

with IDIs that have $100 billion or more 

in consolidated assets. 

Under regulations promulgated by the 

Small Business Administration (SBA), a 

small entity, for purposes of the RFA, 

includes a depository institution, a 

BHC, or an SLHC with total assets of 

$850 million or less (small banking 

organization).115 As of March 31, 2023, 

there were approximately 96 small 

SLHCs and 2,607 small BHCs. Because 

only domestic SLHCs and BHCs and 

U.S. IHCs of FBOs with total 

consolidated assets of $100 billion or 

more would be subject to the proposed 

rule, all covered entities substantially 

exceed the $850 million asset threshold 

at which a banking entity would qualify 

as a small banking organization. 

However, some IDIs are subject to the 

proposed IDI-level requirement by 

virtue of being affiliated with an IDI 

with $100 billion or more in 

consolidated assets that is subject to the 

IDI-level requirement. These affiliated 

IDIs are not subject to a minimum size 

threshold. Accordingly, small state 

member banks could be subject to the 

proposed rule. As of March 31, 2023, 

there were approximately 466 small 

state member banks. However, the 

Board believes that no small state 

member banks would be affiliated with 

a covered IDI.116 Therefore, the Board 

believes that no covered entity or 

covered IDI that is state member bank 

that would be subject to the proposed 

rule would be considered a small entity 

for purposes of the RFA. 

4. Estimating Compliance Requirements 

The proposal would introduce a 

requirement that covered entities and 

covered IDIs issue and maintain 

minimum amounts of LTD that satisfies 

the eligibility conditions described in 

section V of this SUPPLEMENTARY

INFORMATION, as applicable. The 

proposal would also require covered 

entities to comply with ‘‘clean holding 

company’’ limitations on certain 

corporate practices and transactions that 

could complicate the orderly resolution 

of such firms, as described in section VI 

of this SUPPLEMENTARY INFORMATION. 

Further, the proposal would require 

banking organizations subject to the 

capital deduction framework contained 

in the agencies’ capital rule to deduct 

from regulatory capital external LTD 

issued by covered entities and 

externally issuing IDIs to meet the 

proposal’s LTD requirements. Finally, as 

described in section X of this 

SUPPLEMENTARY INFORMATION, TLAC 

companies would have to comply with 

the primarily technical and harmonizing 

amendments to the Board’s TLAC rule. 

For U.S. GSIBs, these proposed 

amendments to the TLAC rule would 

require the public disclosures of certain 

qualitative and quantitative information 

regarding their creditor rankings. 

With respect to the impact of the 

proposal on small banking 

organizations, as discussed above, the 

Board believes that no such small 

banking organizations will be subject to 

the proposal’s compliance requirements. 

Because no small banking organizations 

will bear additional costs under the 

proposal, the Board believes that the 

proposal will not have a significant 

economic impact on a substantial 

number of small entities. 

5. Duplicative, Overlapping, and 

Conflicting Rules 

The agencies are not aware of any 

Federal rules that may be duplicative, 

overlap with, or conflict with the 

proposed rule. 

6. Significant Alternatives Considered 

The Board did not consider any 

significant alternatives to the proposed 

rule. The Board believes that requiring 

the availability of LTD funding at 

covered entities and covered IDIs is the 

best way to achieve the Board’s 

objectives of safeguarding financial 

stability by ensuring the orderly 

resolution of covered entities and 

covered IDIs should such an entity fail. 

FDIC 

The Regulatory Flexibility Act (RFA) 

generally requires an agency, in 

connection with a proposed rule, to 

prepare and make available for public 

comment an initial regulatory flexibility 

analysis that describes the impact of the 

proposed rule on small entities.117

However, an initial regulatory flexibility 

analysis is not required if the agency 

certifies that the proposed rule will not, 

if promulgated, have a significant 

economic impact on a substantial 

number of small entities. The Small 

Business Administration (SBA) has 

defined ‘‘small entities’’ to include 

banking organizations with total assets 


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118The SBA defines a small banking organization 

as having $850 million or less in assets, where an 

organization’s ‘‘assets are determined by averaging 

the assets reported on its four quarterly financial 

statements for the preceding year.’’ See 13 CFR 

121.201 (as amended by 87 FR 69118, effective 

December 19, 2022). In its determination, the ‘‘SBA 

counts the receipts, employees, or other measure of 

size of the concern whose size is at issue and all 

of its domestic and foreign affiliates.’’ See 13 CFR 

121.103. Following these regulations, the FDIC uses 

an insured depository institution’s affiliated and 

acquired assets, averaged over the preceding four 

quarters, to determine whether the insured 

depository institution is ‘‘small’’ for the purposes of 

RFA. 

119FDIC Call Report data, March 31, 2023. 

120 Id. 

121 12 U.S.C. 4802(a). 

122 12 U.S.C. 4802(b). 

123Public Law 106–102, section 722, 113 Stat. 

1338, 1471 (1999), 12 U.S.C. 4809. 

of less than or equal to $850 million.118

Generally, the FDIC considers a 

significant economic impact to be a 

quantified effect in excess of 5 percent 

of total annual salaries and benefits or 

2.5 percent of total noninterest 

expenses. The FDIC believes that effects 

in excess of one or more of these 

thresholds typically represent 

significant economic impacts for FDICsupervised institutions. For the reasons 

described below and under section 

605(b) of the RFA, the FDIC certifies 

that this rule, if adopted, will not have 

a significant economic impact on a 

substantial number of small entities. As 

of March 31, 2023, the FDIC supervised 

3,012 depository institutions, of which 

2,306 the FDIC identifies as a ‘‘small 

entity’’ for purposes of the RFA.119

As described above in subsection A. 

‘‘Scope of Application’’ of sections III 

and IV of this SUPPLEMENTARY

INFORMATION, the proposed rule would 

require three categories of IDIs to issue 

eligible LTD. The proposed rule would 

apply to Category II, III, and IV BHCs, 

SLHCs, and U.S. IHCs that are not 

currently subject to the existing TLAC 

rule as defined under the Board’s 

Regulations LL and YY and their 

consolidated IDI subsidiaries. The 

proposed rule would also apply to IDIs 

that are not consolidated subsidiaries of 

U.S. GSIBs and that (i) have at least 

$100 billion in consolidated assets or 

(ii) are affiliated with IDIs that have at 

least $100 billion in consolidated assets. 

As of March 31, 2023, there are no 

small, FDIC-supervised institutions that 

are covered IDIs.120 In light of the 

foregoing, the FDIC certifies that the 

proposed rule will not have a significant 

economic impact on a substantial 

number of small entities supervised. 

The FDIC invites comments on all 

aspects of the supporting information 

provided in this RFA section. 

Question 67: In particular, would this 

proposed rule have any significant 

effects on small entities that the FDIC 

has not identified? 

C. Riegle Community Development and 

Regulatory Improvement Act of 1994 

Pursuant to section 302(a) of the 

Riegle Community Development and 

Regulatory Improvement Act 

(RCDRIA),121 in determining the 

effective date and administrative 

compliance requirements for new 

regulations that impose additional 

reporting, disclosure, or other 

requirements on IDIs, each Federal 

banking agency must consider, 

consistent with the principle of safety 

and soundness and the public interest, 

any administrative burdens that such 

regulations would place on depository 

institutions, including small depository 

institutions, and customers of 

depository institutions, as well as the 

benefits of such regulations. In addition, 

section 302(b) of RCDRIA, requires new 

regulations and amendments to 

regulations that impose additional 

reporting, disclosures, or other new 

requirements on IDIs generally to take 

effect on the first day of a calendar 

quarter that begins on or after the date 

on which the regulations are published 

in final form, with certain exceptions, 

including for good cause.122

The agencies request comment on any 

administrative burdens that the 

proposed rule would place on 

depository institutions, including small 

depository institutions, and their 

customers, and the benefits of the 

proposed rule that the agencies should 

consider in determining the effective 

date and administrative compliance 

requirements for a final rule. 

D. Solicitation of Comments on the Use 

of Plain Language 

Section 722 of the Gramm-LeachBliley Act 123 (Pub. L. 106–102, 113 Stat. 

1338, 1471, 12 U.S.C. 4809) requires the 

Federal banking agencies to use plain 

language in all proposed and final rules 

published after January 1, 2000. The 

agencies have sought to present the 

proposed rule in a simple and 

straightforward manner and invite 

comment on the use of plain language 

and whether any part of the proposed 

rule could be more clearly stated. For 

example: 

• Have the agencies presented the 

material in an organized manner that 

meets your needs? If not, how could this 

material be better organized? 

• Are the requirements in the notice 

of proposed rulemaking clearly stated? 

If not, how could the proposed rule be 

more clearly stated? 

• Does the proposed rule contain 

language that is not clear? If so, which 

language requires clarification? 

• Would a different format (grouping 

and order of sections, use of headings, 

paragraphing) make the proposed rule 

easier to understand? If so, what 

changes to the format would make the 

proposed rule easier to understand? 

• What else could the agencies do to 

make the proposed rule easier to 

understand? 

E. OCC Unfunded Mandates Reform Act 

of 1995 Determination 

The OCC has analyzed the proposed 

rule under the factors in the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

(2 U.S.C. 1532). Under this analysis, the 

OCC considered whether the proposed 

rule includes a Federal mandate that 

may result in the expenditure by State, 

local, and tribal governments, in the 

aggregate, or by the private sector, of 

$100 million or more in any one year 

(adjusted annually for inflation). 

The OCC has determined this 

proposed rule is likely to result in the 

expenditure by the private sector of 

$100 million or more in any one year 

(adjusted annually for inflation). The 

OCC has prepared an impact analysis 

and identified and considered 

alternative approaches. When the 

proposed rule is published in the 

Federal Register, the full text of the 

OCC’s analysis will be available at: 

http://www.regulations.gov, Docket ID 

OCC–2023–0011. 

F. Providing Accountability Through 

Transparency Act of 2023 

The Providing Accountability 

Through Transparency Act of 2023 (12 

U.S.C. 553(b)(4)) requires that a notice 

of proposed rulemaking include the 

internet address of a summary of not 

more than 100 words in length of a 

proposed rule, in plain language, that 

shall be posted on the internet website 

under section 206(d) of the EGovernment Act of 2002 (44 U.S.C. 3501 

note). 

In summary, the bank regulatory 

agencies request comment on a proposal 

to improve the resolvability and 

resilience of large banking 

organizations. The proposal would 

require certain banking organizations to 

maintain outstanding a minimum 

amount of long-term debt that could 

absorb losses in resolution. The 

proposal would also impose 

requirements on the corporate practices 

of certain holding companies to improve 

their resolvability, and apply a stringent 

capital treatment to large banking 

organizations’ holdings of long-term 

debt issued by other banking 


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organizations. Lastly, the proposal 

would amend existing total loss 

absorbing capacity requirements for 

global systemically important banks. 

The proposal and the required 

summary can be found at https://

www.regulations.gov, https://occ.gov/ 

topics/laws-and-regulations/occregulations/proposed-issuances/indexproposed-issuances.html, https://

www.federalreserve.gov/supervisionreg/ 

reglisting.htm, and https://

www.fdic.gov/resources/regulations/ 

federal-register-publications/. 

Text of Common Rule 

(All Agencies) 

PART [ll]—LONG-TERM DEBT 

REQUIREMENTS 

Sec. 

ll.1 Applicability, reservations of 

authority, and timing. 

ll.2 Definitions. 

ll.3 Long-term debt requirement. 

Authority: [AGENCY AUTHORITY]. 

§ll.1 Applicability, reservations of 

authority, and timing. 

(a) Applicability. (1) [BANKS] that are 

consolidated subsidiaries of companies 

subject to a long-term debt requirement. 

A [BANK] is subject to the requirements 

of this part if the [BANK]: 

(i) Has $100 billion or more of total 

consolidated assets, as reported on the 

[BANK’s] most recent Call Report; and 

(ii) Is a consolidated subsidiary of: 

(A) A depository institution holding 

company that is subject to a long-term 

debt requirement set forth in § 238.182 

or § 252.62 of this title and that is not 

a global systemically important BHC; or 

(B) A U.S. intermediate holding 

company that is subject to a long-term 

debt requirement set forth in § 252.162 

of this title. 

(2) [BANKS] that are not consolidated 

subsidiaries of companies subject to a 

long-term debt requirement. 

(i) A [BANK] is subject to the 

requirements of this part if the [BANK]: 

(A) Is not a consolidated subsidiary of 

a depository institution holding 

company or U.S. intermediate holding 

company that is subject to a long-term 

debt requirement set forth in § 238.182, 

252.62, or § 252.162 of this title; and 

(B) Has total consolidated assets, 

calculated based on the average of the 

[BANK’s] total consolidated assets for 

the four most recent calendar quarters as 

reported on the Call Report, equal to 

$100 billion or more. If the [BANK] has 

not filed the Call Report for each of the 

four most recent calendar quarters, total 

consolidated assets is calculated based 

on its total consolidated assets, as 

reported on the Call Report, for the most 

recent quarter or average of the most 

recent quarters, as applicable. 

(ii) After meeting the criteria in 

paragraphs (a)(2)(i)(A) and (B) of this 

section, a [BANK] continues to be 

subject to the requirements of this part 

pursuant to paragraph (a)(2) of this 

section until the [BANK] has less than 

$100 billion in total consolidated assets, 

as reported on the Call Report, for each 

of the four most recent calendar 

quarters. 

(3) [BANKS] affiliated with insured 

depository institutions subject to the 

rule. A [BANK] is subject to the 

requirements of this part if the [BANK] 

is an affiliate of an insured depository 

institution described in paragraphs 

(a)(1) or (2) of this section, or [OTHER 

AGENCIES’ SCOPING PARAGRAPHS]. 

(b) Timing. A [BANK] must comply 

with the requirements of this part 

beginning three years after the date on 

which the [BANK] becomes subject to 

this part, [OTHER AGENCIES’ LONGTERM DEBT REQUIREMENT], except 

that a [BANK] must have an outstanding 

eligible long-term debt amount that is 

no less than: 

(1) 25 percent of the amount required 

under §ll.3 by one year after the date 

on which the [BANK] first becomes 

subject to this part, [OTHER AGENCIES’ 

LONG-TERM DEBT REQUIREMENT]; 

and 

(2) 50 percent of the amount required 

under §ll.3 by two years after the 

date on which the [BANK] first becomes 

subject to this part, [OTHER AGENCIES’ 

LONG-TERM DEBT REQUIREMENT]. 

(c) Reservation of authority. The 

[AGENCY] may require a [BANK] to 

maintain an eligible long-term debt 

amount greater than otherwise required 

under this part if the [AGENCY] 

determines that the [BANK’s] long-term 

debt requirement under this part is not 

commensurate with the risk the 

activities of the [BANK] pose to public 

and private stakeholders in the event of 

material distress and failure of the 

[BANK]. In making a determination 

under this paragraph (c), the [AGENCY] 

will apply notice and response 

procedures in the same manner as the 

notice and response procedures in 

[AGENCY NOTICE PROVISION]. 

§ll.2 Definitions. 

For purposes of this part, the 

following definitions apply: 

Affiliate means, with respect to a 

company, any company that controls, is 

controlled by, or is under common 

control with, the company. 

Average total consolidated assets 

means the denominator of the leverage 

ratio as described in [AGENCY 

LEVERAGE RATIO]. 

Bank holding company means a bank 

holding company as defined in section 

2 of the Bank Holding Company Act of 

1956, as amended (12 U.S.C. 1841). 

Call Report means Consolidated 

Reports of Condition and Income. 

Control. A person or company 

controls a company if it: 

(1) Owns, controls, or holds with the 

power to vote 25 percent or more of a 

class of voting securities of the 

company; or 

(2) Consolidates the company for 

financial reporting purposes. 

Deposit has the same meaning as in 

section 3 of the Federal Deposit 

Insurance Act (12 U.S.C. 1813). 

Depository institution holding 

company means a bank holding 

company or savings and loan holding 

company. 

Eligible debt security means an 

eligible internal debt security except 

that, with respect to an externally 

issuing [BANK], eligible debt security 

means an eligible external debt security 

and an eligible internal debt security. 

Eligible external debt security means: 

(1) New issuances. A debt instrument 

that: 

(i) Is paid in, and issued by the 

[BANK] to, and remains held by, a 

person that is not an affiliate of the 

[BANK], unless the affiliate controls but 

does not consolidate the [BANK]; 

(ii) Is not secured, not guaranteed by 

the [BANK] or an affiliate of the 

[BANK], and is not subject to any other 

arrangement that legally or 

economically enhances the seniority of 

the instrument; 

(iii) Has a maturity of greater than or 

equal to one year from the date of 

issuance; 

(iv) Is governed by the laws of the 

United States or any State thereof; 

(v) Does not provide the holder of the 

instrument a contractual right to 

accelerate payment of principal or 

interest on the instrument, except a 

right that is exercisable on one or more 

dates that are specified in the 

instrument or in the event of: 

(A) A receivership, insolvency, 

liquidation, or similar proceeding of the 

[BANK]; or 

(B) A failure of the [BANK] to pay 

principal or interest on the instrument 

when due and payable that continues 

for 30 days or more; 

(vi) Does not have a credit-sensitive 

feature, such as an interest rate that is 

reset periodically based in whole or in 

part on the [BANK’s] credit quality, but 

may have an interest rate that is 

adjusted periodically independent of 

the [BANK’s] credit quality, in relation 

to general market interest rates or 

similar adjustments; 


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(vii) Is not a structured note; 

(viii) Does not provide that the 

instrument may be converted into or 

exchanged for equity of the [BANK]; and 

(ix) Is not issued in denominations of 

less than $400,000 and must not be 

exchanged for smaller denominations by 

the [BANK]; and 

(x) Is contractually subordinated to 

claims of depositors and general 

unsecured creditors in a receivership, 

for purposes of 12 U.S.C. 

1821(d)(11)(A)(iv), or any similar 

proceeding. 

(2) Legacy external long-term debt. A 

debt instrument issued prior to [DATE 

OF PUBLICATION OF FINAL RULE IN 

THE FEDERAL REGISTER], that: 

(i) Is paid in, and issued by the 

[BANK] to, and remains held by, a 

person that is not an affiliate of the 

[BANK], unless the affiliate controls but 

does not consolidate the [BANK]; 

(ii) Is not secured, not guaranteed by 

the [BANK] or an affiliate of the 

[BANK], and is not subject to any other 

arrangement that legally or 

economically enhances the seniority of 

the instrument; 

(iii) Has a maturity of greater than or 

equal to one year from the date of 

issuance; 

(iv) Is governed by the laws of the 

United States or any State thereof; 

(v) Does not have a credit-sensitive 

feature, such as an interest rate that is 

reset periodically based in whole or in 

part on the [BANK’s] credit quality, but 

may have an interest rate that is 

adjusted periodically independent of 

the [BANK’s] credit quality, in relation 

to general market interest rates or 

similar adjustments; 

(vi) Is not a structured note; 

(vii) Does not provide that the 

instrument may be converted into or 

exchanged for equity of the [BANK]; and 

(viii) Would represent a claim in a 

receivership or similar proceeding that 

is subordinated to a deposit. 

Eligible internal debt security means: 

(1) New issuances. A debt instrument 

that: 

(i) Is paid in, and issued by the 

[BANK]; 

(ii) Is not secured, not guaranteed by 

the [BANK] or an affiliate of the 

[BANK], and is not subject to any other 

arrangement that legally or 

economically enhances the seniority of 

the instrument; 

(iii) Has a maturity of greater than or 

equal to one year from the date of 

issuance; 

(iv) Is governed by the laws of the 

United States or any State thereof; 

(v) Does not provide the holder of the 

instrument a contractual right to 

accelerate payment of principal or 

interest on the instrument, except a 

right that is exercisable on one or more 

dates that are specified in the 

instrument or in the event of: 

(A) A receivership, insolvency, 

liquidation, or similar proceeding of the 

[BANK]; or 

(B) A failure of the [BANK] to pay 

principal or interest on the instrument 

when due and payable that continues 

for 30 days or more; 

(vi) Does not have a credit-sensitive 

feature, such as an interest rate that is 

reset periodically based in whole or in 

part on the [BANK’s] credit quality, but 

may have an interest rate that is 

adjusted periodically independent of 

the [BANK’s] credit quality, in relation 

to general market interest rates or 

similar adjustments; 

(vii) Is not a structured note; 

(viii) Is issued to and remains held by 

a company: 

(A) Of which [BANK] is a 

consolidated subsidiary; and 

(B) In the case of a [BANK] that is a 

consolidated subsidiary of a U.S. 

intermediate holding company, that is 

domiciled in the United States; 

(ix) Does not provide that the 

instrument may be converted into or 

exchanged for equity of the [BANK]; and 

(x) Is contractually subordinated to 

claims of depositors and general 

unsecured creditors in a receivership, 

for purposes of 12 U.S.C. 

1821(d)(11)(A)(iv), or any similar 

proceeding. 

(2) Legacy internal long-term debt. A 

debt instrument issued prior to [DATE 

OF PUBLICATION OF FINAL RULE IN 

THE FEDERAL REGISTER] that: 

(i) Is paid in, and issued by the 

[BANK] to, and remains held by, a 

person that is not an affiliate of the 

[BANK], unless the affiliate controls but 

does not consolidate the [BANK]; 

(ii) Is not secured, not guaranteed by 

the [BANK] or an affiliate of the 

[BANK], and is not subject to any other 

arrangement that legally or 

economically enhances the seniority of 

the instrument; 

(iii) Has a maturity of greater than or 

equal to one year from the date of 

issuance; 

(iv) Is governed by the laws of the 

United States or any State thereof; 

(v) Does not have a credit-sensitive 

feature, such as an interest rate that is 

reset periodically based in whole or in 

part on the [BANK’s] credit quality, but 

may have an interest rate that is 

adjusted periodically independent of 

the [BANK’s] credit quality, in relation 

to general market interest rates or 

similar adjustments; 

(vi) Is not a structured note; 

(vii) Does not provide that the 

instrument may be converted into or 

exchanged for equity of the [BANK]; and 

(viii) Would represent a claim in a 

receivership or similar proceeding that 

is subordinated to a deposit. 

Externally issuing [BANK] means a 

[BANK] subject to this part that is not 

a consolidated subsidiary of a 

depository institution holding company 

or U.S. intermediate holding company 

that is subject to a long-term debt 

requirement set forth in § 238.182, 

§ 252.62, or § 252.162 of this title. 

FDIC means the Federal Deposit 

Insurance Corporation. 

GAAP means generally accepted 

accounting principles as used in the 

United States. 

Global systemically important BHC 

means a bank holding company 

identified as a global systemically 

important BHC pursuant to § 217.402 of 

this title. 

Insured depository institution means 

an insured depository institution as 

defined in section 3 of the Federal 

Deposit Insurance Act (12 U.S.C. 1813). 

Person includes an individual, bank, 

corporation, partnership, trust, 

association, joint venture, pool, 

syndicate, sole proprietorship, 

unincorporated organization, or any 

other form of entity. 

Savings and loan holding company 

means a savings and loan holding 

company as defined in section 10 of the 

Home Owners’ Loan Act (12 U.S.C. 

1467a). 

State means any state, 

commonwealth, territory, or possession 

of the United States, the District of 

Columbia, the Commonwealth of Puerto 

Rico, the Commonwealth of the 

Northern Mariana Islands, American 

Samoa, Guam, or the United States 

Virgin Islands. 

Structured note— 

(1) Means a debt instrument that: 

(i) Has a principal amount, 

redemption amount, or stated maturity 

that is subject to reduction based on the 

performance of any asset, entity, index, 

or embedded derivative or similar 

embedded feature; 

(ii) Has an embedded derivative or 

similar embedded feature that is linked 

to one or more equity securities, 

commodities, assets, or entities; 

(iii) Does not specify a minimum 

principal amount that becomes due and 

payable upon acceleration or early 

termination; or 

(iv) Is not classified as debt under 

GAAP. 

(2) Notwithstanding paragraph (1) of 

this definition, an instrument is not a 

structured note solely because it is one 

or both of the following: 


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(i) A non-dollar-denominated 

instrument, or 

(ii) An instrument whose interest 

payments are based on an interest rate 

index. 

Subsidiary means, with respect to a 

company, a company controlled by that 

company. 

Supplementary leverage ratio has the 

same meaning as in [AGENCY 

SUPPLEMENTARY LEVERAGE 

RATIO]. 

Total leverage exposure has the same 

meaning as in [AGENCY TOTAL 

LEVERAGE EXPOSURE]. 

Total risk-weighted assets means— 

(1) For a [BANK] that has completed 

the parallel run process and received 

notification from the [AGENCY] 

pursuant to [AGENCY AA 

NOTIFICATION PROVISION], the 

greater of: 

(i) Standardized total risk-weighted 

assets as defined in [AGENCY CAPITAL 

RULE DEFINITIONS]; and 

(ii) Advanced approaches total riskweighted assets as defined in [AGENCY 

CAPITAL RULE DEFINITIONS]; and 

(2) For any other [BANK], 

standardized total risk-weighted assets 

as defined in [AGENCY CAPITAL RULE 

DEFINITIONS]. 

U.S. intermediate holding company 

means a company that is required to be 

established or designated pursuant to 

§ 252.153 of this title. 

§ll.3 Long-term debt requirement. 

(a) Long-term debt requirement. A 

[BANK] subject to this part must have 

an outstanding eligible long-term debt 

amount that is no less than the amount 

equal to the greater of: 

(1) 6 percent of the [BANK’s] total 

risk-weighted assets; 

(2) If the [BANK] is required to 

maintain a minimum supplementary 

leverage ratio, 2.5 percent of the 

[BANK’s] total leverage exposure; and 

(3) 3.5 percent of the [BANK’s] 

average total consolidated assets. 

(b) Outstanding eligible long-term 

debt amount. (1) A [BANK’s] 

outstanding eligible long-term debt 

amount is the sum of: 

(i) One hundred (100) percent of the 

amount due to be paid of unpaid 

principal of the outstanding eligible 

debt securities issued by the [BANK] in 

greater than or equal to two years; 

(ii) Fifty (50) percent of the amount 

due to be paid of unpaid principal of the 

outstanding eligible debt securities 

issued by the [BANK] in greater than or 

equal to one year and less than two 

years; and 

(iii) Zero (0) percent of the amount 

due to be paid of unpaid principal of the 

outstanding eligible debt securities 

issued by the [BANK] in less than one 

year. 

(2) For purposes of paragraph (b)(1) of 

this section, the date on which principal 

is due to be paid on an outstanding 

eligible debt security is calculated from 

the earlier of: 

(i) The date on which payment of 

principal is required under the terms 

governing the instrument, without 

respect to any right of the holder to 

accelerate payment of principal; and 

(ii) The date the holder of the 

instrument first has the contractual right 

to request or require payment of the 

amount of principal, provided that, with 

respect to a right that is exercisable on 

one or more dates that are specified in 

the instrument only on the occurrence 

of an event (other than an event of a 

receivership, insolvency, liquidation, or 

similar proceeding of the [BANK], or a 

failure of the [BANK] to pay principal 

or interest on the instrument when due), 

the date for the outstanding eligible debt 

security under this paragraph (b)(2)(ii) 

will be calculated as if the event has 

occurred. 

(3) After applying notice and response 

procedures in the same manner as the 

notice and response procedures in 

[AGENCY NOTICE PROVISION], the 

[AGENCY] may order a [BANK] to 

exclude from its outstanding eligible 

long-term debt amount any debt security 

with one or more features that would 

significantly impair the ability of such 

debt security to take losses. 

List of Subjects 

12 CFR Part 3 

Administrative practice and 

procedure, Banks, banking, Federal 

Reserve System, Investments, National 

banks, Reporting and recordkeeping 

requirements, Savings association. 

12 CFR Part 54 

Administrative practice and 

procedure, Capital, National banks, 

Reporting and recordkeeping 

requirements, Risk, Savings 

associations. 

12 CFR Part 216 

Administrative practice and 

procedure, Banks, banking, Capital, 

Federal Reserve System, Holding 

companies, Reporting and 

recordkeeping requirements, Risk. 

12 CFR Part 217 

Administrative practice and 

procedure, Banks, banking, Federal 

Reserve System, Reporting and 

recordkeeping requirements, Securities. 

12 CFR Part 238 

Administrative practice and 

procedure, Banks, banking, Federal 

Reserve System, Holding companies, 

Reporting and recordkeeping 

requirements, Securities. 

12 CFR Part 252 

Administrative practice and 

procedure, Banks, banking, Credit, 

Federal Reserve System, Holding 

companies, Investments, Qualified 

financial contracts, Reporting and 

recordkeeping requirements, Securities. 

12 CFR Part 324 

Administrative practice and 

procedure, Banks, banking, Confidential 

business information, Investments, 

Reporting and recordkeeping 

requirements, Savings associations. 

12 CFR Part 374 

Administrative practice and 

procedure, Banks, banking, Capital, 

Confidential business information, 

Investments, Reporting and 

recordkeeping requirements, Savings 

associations, State banking. 

Adoption of the Common Rule Text 

The proposed adoption of the 

common rules by the agencies, as 

modified by agency-specific text, is set 

forth below: 

DEPARTMENT OF THE TREASURY 

Office of the Comptroller of the 

Currency 

12 CFR Chapter I 

Authority and Issuance 

For the reasons set forth in the 

common preamble and under the 

authority of 12 U.S.C. 93a and 

5412(b)(2)(B), the Office of the 

Comptroller of the Currency proposes to 

amend chapter I of title 12, Code of 

Federal Regulations, as follows: 

PART 3—CAPITAL ADEQUACY 

STANDARDS 

■ 1. The authority citation for part 3 

continues to read as follows: 

Authority: 12 U.S.C. 93a, 161, 1462, 1462a, 

1463, 1464, 1818, 1828(n), 1828 note, 1831n 

note, 1835, 3907, 3909, 5412(b)(2)(B), and 

Pub. L. 116–136, 134 Stat. 281. 

■ 2. In § 3.2, revise the definition of 

‘‘Covered debt instrument’’ to read as 

follows: 

§ 3.2 Definitions. 

* * * * * 

Covered debt instrument means an 

unsecured debt instrument that is: 

(1) Both: 


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23The national bank or Federal savings 

association must calculate amounts deducted under 

paragraphs (c) through (f) of this section after it 

calculates the amount of ALLL or AACL, as 

applicable, includable in tier 2 capital under 

§ 3.20(d)(3). 

(i) Issued by a depository institution 

holding company that is subject to a 

long-term debt requirement set forth in 

§§ 238.182 or 252.62 of this title, as 

applicable, or a subsidiary of such 

depository institution holding company; 

and 

(ii) An eligible debt security, as 

defined in §§ 238.181 or 252.61 of this 

title, as applicable, or that is pari passu 

or subordinated to any eligible debt 

security issued by the depository 

institution holding company; or 

(2) Both: 

(i) Issued by a U.S. intermediate 

holding company or insured depository 

institution that is subject to a long-term 

debt requirement set forth in § 54.3 of 

this chapter or §§ 216.3, 252.162, or 

374.3 of this title, as applicable, or a 

subsidiary of such U.S. intermediate 

holding company or insured depository 

institution; and 

(ii) An eligible external debt security, 

as defined in § 54.2 of this chapter or 

§ 216.2, § 252.161, or § 374.2 of this title, 

as applicable, or that is pari passu or 

subordinated to any eligible external 

debt security issued by the U.S. 

intermediate holding company or 

insured depository institution. 

(3) Issued by a global systemically 

important banking organization, as 

defined in § 252.2 of this title other than 

a global systemically important BHC; or 

issued by a subsidiary of a global 

systemically important banking 

organization that is not a global 

systemically important BHC, other than 

a U.S. intermediate holding company 

subject to a long-term debt requirement 

set forth in § 252.162 of this title; and 

where, 

(i) The instrument is eligible for use 

to comply with an applicable law or 

regulation requiring the issuance of a 

minimum amount of instruments to 

absorb losses or recapitalize the issuer 

or any of its subsidiaries in connection 

with a resolution, receivership, 

insolvency, or similar proceeding of the 

issuer or any of its subsidiaries; or 

(ii) The instrument is pari passu or 

subordinated to any instrument 

described in paragraph (3)(i) of this 

definition; for purposes of this 

paragraph (3)(ii) of this definition, if the 

issuer may be subject to a special 

resolution regime, in its jurisdiction of 

incorporation or organization, that 

addresses the failure or potential failure 

of a financial company and any 

instrument described in paragraph (3)(i) 

of this definition is eligible under that 

special resolution regime to be written 

down or converted into equity or any 

other capital instrument, then an 

instrument is pari passu or subordinated 

to any instrument described in 

paragraph (3)(i) of this definition if that 

instrument is eligible under that special 

resolution regime to be written down or 

converted into equity or any other 

capital instrument ahead of or 

proportionally with any instrument 

described in paragraph (3)(i) of this 

definition; and 

(4) Provided that, for purposes of this 

definition, covered debt instrument does 

not include a debt instrument that 

qualifies as tier 2 capital pursuant to 

§ 3.20(d) or that is otherwise treated as 

regulatory capital by the primary 

supervisor of the issuer. 

* * * * * 

■ 3. Amend § 3.22, by revising 

paragraphs (c),(h)(3) introductory text, 

(h)(3)(iii) and (h)(3)(iii)(A) to read as 

follows: 

§ 3.22 Regulatory capital adjustments and 

deductions. 

* * * * * 

(c) Deductions from regulatory capital 

related to investments in capital 

instruments or covered debt 

instruments 23—(1) Investment in the 

national bank’s or Federal savings 

association’s own capital or covered 

debt instruments. A national bank or 

Federal savings association must deduct 

an investment in its own capital 

instruments, and an advanced 

approaches national bank or Federal 

savings association also must deduct an 

investment in its own covered debt 

instruments, as follows: 

(i) A national bank or Federal savings 

association must deduct an investment 

in the national bank’s or Federal savings 

association’s own common stock 

instruments from its common equity tier 

1 capital elements to the extent such 

instruments are not excluded from 

regulatory capital under § 3.20(b)(1); 

(ii) A national bank or Federal savings 

association must deduct an investment 

in the national bank’s or Federal savings 

association’s own additional tier 1 

capital instruments from its additional 

tier 1 capital elements; 

(iii) A national bank or Federal 

savings association must deduct an 

investment in the national bank’s or 

Federal savings association’s own tier 2 

capital instruments from its tier 2 

capital elements; and 

(iv) An advanced approaches national 

bank or Federal savings association 

must deduct an investment in the 

national bank’s or Federal savings 

association’s own covered debt 

instruments from its tier 2 capital 

elements, as applicable. If the advanced 

approaches national bank or Federal 

savings association does not have a 

sufficient amount of tier 2 capital to 

effect this deduction, the national bank 

or Federal savings association must 

deduct the shortfall amount from the 

next higher (that is, more subordinated) 

component of regulatory capital. 

* * * * * 

(h) * * * 

(3) Adjustments to reflect a short 

position. In order to adjust the gross 

long position to recognize a short 

position in the same instrument under 

paragraph (h)(1) of this section, the 

following criteria must be met: 

* * * * * 

(iii) For an investment in a national 

banks’ or Federal savings association’s 

own capital instrument under paragraph 

(c)(1) of this section, an investment in 

the capital of an unconsolidated 

financial institution under paragraphs 

(c)(4) through (6) and (d) of this section 

(as applicable), and an investment in a 

covered debt instrument under 

paragraphs (c)(1), (5), and (6) of this 

section: 

(A) The national bank or Federal 

savings association may only net a short 

position against a long position in an 

investment in the national bank’s or 

Federal savings association’s own 

capital instrument or own covered debt 

instrument under paragraph (c)(1) of 

this section if the short position 

involves no counterparty credit risk; 

* * * * * 

PART 54—LONG-TERM DEBT 

REQUIREMENTS 

■ 4. Add part 54 as set forth at the end 

of the common preamble. 

■ 5. Amend part 54 by: 

■ a. Removing ‘‘[AGENCY]’’ and adding 

‘‘Office of the Comptroller of the 

Currency’’ in its place wherever it 

appears. 

■ b. Removing ‘‘[AGENCY 

AUTHORITY]’’ and adding ‘‘12 U.S.C. 

1(a), 93a, 161, 1462, 1462a, 1463, 1818, 

1828(n), 1828 note, 1831n note, 1831p– 

1, 1835, 3907, 3909, 5371, and 

5412(b)(2)(B).’’ 

■ c. Removing ‘‘[AGENCY TOTAL 

LEVERAGE EXPOSURE]’’ and adding 

‘‘12 CFR 3.10(c)(2)’’ in its place 

wherever it appears. 

■ d. Removing ‘‘[BANK]’’ and adding 

‘‘national bank or Federal savings 

association’’ wherever it appears. 

■ e. Removing ‘‘[BANK’s]’’ and adding 

‘‘national bank’s or Federal savings 

association’s’’ in its place wherever it 

appears. 


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■ f. Removing ‘‘[BANKS]’’ and adding 

‘‘national banks and Federal savings 

associations’’ in its place wherever it 

appears. 

■ g. Removing ‘‘[AGENCY NOTICE 

PROVISION]’’ and adding ‘‘§ 3.404 of 

this chapter’’ in its place wherever it 

appears. 

■ h. Removing ‘‘[AGENCY LEVERAGE 

RATIO]’’ and adding ‘‘12 CFR 

3.10(b)(4)’’ in its place wherever it 

appears. 

■ i. Removing ‘‘[AGENCY 

SUPPLEMENTARY LEVERAGE 

RATIO]’’ and adding ‘‘12 CFR 

3.10(c)(1)’’ in its place wherever it 

appears. 

■ j. Removing ‘‘[OTHER AGENCIES’ 

LONG-TERM DEBT REQUIREMENT]’’ 

and adding ‘‘part 216 of this title, or part 

374 of this title’’ in its place wherever 

it appears. 

■ k. Removing ‘‘[OTHER AGENCIES’ 

SCOPING PARAGRAPHS]’’ and adding 

‘‘§ 216.1(a)(1) through (2) of this title, or 

§ 374.1(a)(1) through (2) of this title’’ in 

its place wherever it appears. 

■ l. Removing ‘‘[AGENCY AA 

NOTIFICATION PROVISION]’’ and 

adding ‘‘§ 3.121(d) of this chapter’’ in its 

place wherever it appears. 

■ m. Removing ‘‘[AGENCY CAPITAL 

RULE DEFINITIONS]’’ and adding 

‘‘§ 3.2 of this chapter’’ in its place 

wherever it appears. 

■ n. Amend § 54.2 by adding a 

definition in alphabetical order for 

‘‘Federal savings association’’ to read as 

follows: 

§ 54.2 Definitions. 

* * * * * 

Federal savings association means an 

insured Federal savings association or 

an insured Federal savings bank 

chartered under section 5 of the Home 

Owners’ Loan Act of 1933. 

* * * * * 

FEDERAL RESERVE SYSTEM 

12 CFR Chapter II 

Authority and Issuance 

For the reasons set forth in the 

common preamble, the Board proposes 

to amend chapter II of title 12 of the 

Code of Federal Regulations as follows: 

PART 216—LONG-TERM DEBT 

REQUIREMENTS (REGULATION P) 

■ 6. In part 216: 

■ a. Add the text of the common rule as 

set forth at the end of the common 

preamble. 

■ b. Revise the part heading to read as 

set forth above. 

■ c. Remove ‘‘[AGENCY]’’ and add 

‘‘Board’’ in its place wherever it 

appears; 

■ d. Remove ‘‘[AGENCY AUTHORITY]’’ 

and add ‘‘12 U.S.C. 248(a), 321–338a, 

481–486, 1462a, 1467a, 1818, 1828, 

1831n, 1831o, 1831p–1, 1831w, 1835, 

1844(b), 1851, 3904, 3906–3909, 4808, 

5365, 5368, 5371, and 5371 note.’’; 

■ e. Remove ‘‘[AGENCY TOTAL 

LEVERAGE EXPOSURE]’’ and add 

‘‘§ 217.10(c)(2) of this chapter’’ in its 

place wherever it appears; 

■ f. Remove ‘‘[BANK]’’ and add ‘‘state 

member bank’’ in its place wherever it 

appears; 

■ g. Remove ‘‘[BANK’s]’’ and add ‘‘state 

member bank’s’’ in its place wherever it 

appears; 

■ h. Remove ‘‘[BANKS]’’ and add ‘‘state 

member banks’’ in its place wherever it 

appears. 

■ i. Remove ‘‘[AGENCY NOTICE 

PROVISION]’’ and add ‘‘§ 263.202 of 

this chapter’’ in its place wherever it 

appears; 

■ j. Remove ‘‘[AGENCY LEVERAGE 

RATIO]’’ and add ‘‘§ 217.10(b)(4) of this 

chapter’’ in its place wherever it 

appears; 

■ k. Remove ‘‘[AGENCY 

SUPPLEMENTARY LEVERAGE 

RATIO]’’ and add ‘‘§ 217.10(c)(1) of this 

chapter’’ in its place wherever it 

appears; 

■ l. Remove ‘‘of this title’’ and add ‘‘of 

this chapter’’ in its place wherever it 

appears. 

■ m. Remove ‘‘[OTHER AGENCIES’ 

LONG-TERM DEBT REQUIREMENT]’’ 

and add ‘‘part 54 of this title, or part 374 

of this title’’ in its place wherever it 

appears; and 

■ n. Remove ‘‘[OTHER AGENCIES’ 

SCOPING PARAGRAPHS]’’ and add 

‘‘§ 54.1(a)(1) through (2) of this title, or 

§ 374.1(a)(1) through (2) of this title’’ in 

its place wherever it appears. 

■ o. Remove ‘‘[AGENCY AA 

NOTIFICATION PROVISION]’’ and add 

‘‘§ 217.121(d) of this chapter’’ in its 

place wherever it appears. 

■ p. Remove ‘‘[AGENCY CAPITAL 

RULE DEFINITIONS]’’ and add ‘‘§ 217.2 

of this chapter’’ in its place wherever it 

appears. 

■ 7. In § 216.2, add definitions for 

‘‘Board’’, ‘‘insured state bank’’, ‘‘state 

bank’’, and ‘‘state member bank’’ in 

alphabetical order to read as follows: 

§ 216.2 Definitions. 

* * * * * 

Board means the Board of Governors 

of the Federal Reserve System. 

* * * * * 

Insured state bank means a state bank 

the deposits of which are insured in 

accordance with the Federal Deposit 

Insurance Act (12 U.S.C. 1811 et seq.). 

* * * * * 

State bank means any bank 

incorporated by special law of any State, 

or organized under the general laws of 

any State, or of the United States, 

including a Morris Plan bank, or other 

incorporated banking institution 

engaged in a similar business. 

State member bank means an insured 

state bank that is a member of the 

Federal Reserve System. 

* * * * * 

PART 217—CAPITAL ADEQUACY OF 

BANK HOLDING COMPANIES, 

SAVINGS AND LOAN HOLDING 

COMPANIES, AND STATE MEMBER 

BANKS (REGULATION Q) 

■ 8. The authority citation for part 217 

continues to read as follows: 

Authority: 12 U.S.C. 248(a), 321–338a, 

481–486, 1462a, 1467a, 1818, 1828, 1831n, 

1831o, 1831p–1, 1831w, 1835, 1844(b), 1851, 

3904, 3906–3909, 4808, 5365, 5368, 5371, 

5371 note, and sec. 4012, Pub. L. 116–136, 

134 Stat. 281. 

■ 9. In § 217.2, revise the definition of 

‘‘Covered debt instrument’’ to read as 

follows: 

§ 217.2 Definitions. 

* * * * * 

Covered debt instrument means an 

unsecured debt instrument that is: 

(1) Both: 

(i) Issued by a depository institution 

holding company that is subject to a 

long-term debt requirement set forth in 

§ 238.182 or § 252.62 of this chapter, as 

applicable, or a subsidiary of such 

depository institution holding company; 

and 

(ii) An eligible debt security, as 

defined in § 238.181 or § 252.61 of this 

chapter, as applicable, or that is pari 

passu or subordinated to any eligible 

debt security issued by the depository 

institution holding company; or 

(2) Both: 

(i) Issued by a U.S. intermediate 

holding company or insured depository 

institution that is subject to a long-term 

debt requirement set forth in § 216.3 or 

§ 252.162 of this chapter or § 54.3 or 

§ 374.3 of this title, as applicable, or a 

subsidiary of such U.S. intermediate 

holding company or insured depository 

institution; and 

(ii) An eligible external debt security, 

as defined in § 216.2 or § 252.161 of this 

chapter or § 54.2 or § 374.2 of this title, 

as applicable, or that is pari passu or 

subordinated to any eligible external 

debt security issued by the U.S. 

intermediate holding company or 

insured depository institution; or 

(3) Issued by a global systemically 

important banking organization, as 

defined in § 252.2 of this chapter, other 


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than a global systemically important 

BHC; or issued by a subsidiary of a 

global systemically important banking 

organization that is not a global 

systemically important BHC, other than 

a U.S. intermediate holding company 

subject to a long-term debt requirement 

set forth in § 252.162 of this chapter; 

and where: 

(i) The instrument is eligible for use 

to comply with an applicable law or 

regulation requiring the issuance of a 

minimum amount of instruments to 

absorb losses or recapitalize the issuer 

or any of its subsidiaries in connection 

with a resolution, receivership, 

insolvency, or similar proceeding of the 

issuer or any of its subsidiaries; or 

(ii) The instrument is pari passu or 

subordinated to any instrument 

described in paragraph (3)(i) of this 

definition; for purposes of this 

paragraph (3)(ii), if the issuer may be 

subject to a special resolution regime, in 

its jurisdiction of incorporation or 

organization, that addresses the failure 

or potential failure of a financial 

company, and any instrument described 

in paragraph (3)(i) of this definition is 

eligible under that special resolution 

regime to be written down or converted 

into equity or any other capital 

instrument, then an instrument is pari 

passu or subordinated to any instrument 

described in paragraph (3)(i) of this 

definition if that instrument is eligible 

under that special resolution regime to 

be written down or converted into 

equity or any other capital instrument 

ahead of or proportionally with any 

instrument described in paragraph (3)(i) 

of this definition; and 

(4) Provided that, for purposes of this 

definition, covered debt instrument does 

not include a debt instrument that 

qualifies as tier 2 capital pursuant to 

§ 217.20(d) or that is otherwise treated 

as regulatory capital by the primary 

supervisor of the issuer. 

* * * * * 

PART 238—SAVINGS AND LOAN 

HOLDING COMPANIES (REGULATION 

LL) 

■ 10. The authority citation for part 238 

continues to read as follows: 

Authority: 5 U.S.C. 552, 559; 12 U.S.C. 

1462, 1462a, 1463, 1464, 1467, 1467a, 1468, 

5365; 1813, 1817, 1829e, 1831i, 1972; 15 

U.S.C. 78l. 

■ 11. Add subpart T to read as follows: 

Subpart T—External Long-term Debt 

Requirement and Restrictions on 

Corporate Practices for U.S. Savings 

and Loan Holding Companies With 

Total Consolidated Assets of $100 

Billion or More 

Sec. 

238.180 Applicability and reservation of 

authority. 

238.181 Definitions. 

238.182 External long-term debt 

requirement. 

238.183 Restrictions on corporate practices. 

238.184 Requirement to purchase 

subsidiary long-term debt. 

§ 238.180 Applicability and reservation of 

authority. 

(a) General applicability. This subpart 

applies to any Category II savings and 

loan holding company, Category III 

savings and loan holding company, or 

Category IV savings and loan holding 

company. 

(b) Initial applicability. A covered 

company must comply with the 

requirements of this subpart beginning 

three years after the date on which the 

company becomes subject to this part or 

part 252, subpart G of this chapter. 

(c) Timing. Notwithstanding 

paragraph (b) of this section, a covered 

company must have an outstanding 

eligible long-term debt amount that is 

no less than: 

(1) 25 percent of the amount required 

under § 238.182 by one year after the 

date on which the covered company 

first becomes subject to this subpart or 

part 252, subpart G of this chapter; 

(2) 50 percent of the amount required 

under § 238.182 by two years after the 

date on which the covered company 

first becomes subject to this subpart or 

part 252, subpart G of this chapter. 

(d) Reservation of authority. The 

Board may require a covered company 

to maintain an outstanding eligible 

external long-term debt amount that is 

greater than or less than what is 

otherwise required under this subpart if 

the Board determines that the 

requirements under this subpart are not 

commensurate with the risk the 

activities of the covered company pose 

to public and private stakeholders in the 

event of material distress and failure of 

the covered company. In making a 

determination under this paragraph (d), 

the Board will apply notice and 

response procedures in the same 

manner and to the same extent as the 

notice and response procedures in 

§ 263.202 of this chapter. 

§ 238.181 Definitions. 

For purposes of this subpart: 

Additional tier 1 capital has the same 

meaning as in § 217.20(c) of this 

chapter. 

Average total consolidated assets 

means the denominator of the leverage 

ratio as described in § 217.10(b)(4) of 

this chapter. 

Common equity tier 1 capital has the 

same meaning as in § 217.20(b) of this 

chapter. 

Covered company means a Category II 

savings and loan holding company, 

Category III savings and loan holding 

company, or Category IV savings and 

loan holding company. 

Default right— 

(1) Means any: 

(i) Right of a party, whether 

contractual or otherwise (including 

rights incorporated by reference to any 

other contract, agreement or document, 

and rights afforded by statute, civil 

code, regulation and common law), to 

liquidate, terminate, cancel, rescind, or 

accelerate the agreement or transactions 

thereunder, set off or net amounts owing 

in respect thereto (except rights related 

to same-day payment netting), exercise 

remedies in respect of collateral or other 

credit support or property related 

thereto (including the purchase and sale 

of property), demand payment or 

delivery thereunder or in respect thereof 

(other than a right or operation of a 

contractual provision arising solely from 

a change in the value of collateral or 

margin or a change in the amount of an 

economic exposure), suspend, delay, or 

defer payment or performance 

thereunder, modify the obligations of a 

party thereunder or any similar rights; 

and 

(ii) Right or contractual provision that 

alters the amount of collateral or margin 

that must be provided with respect to an 

exposure thereunder, including by 

altering any initial amount, threshold 

amount, variation margin, minimum 

transfer amount, the margin value of 

collateral or any similar amount, that 

entitles a party to demand the return of 

any collateral or margin transferred by 

it to the other party or a custodian or 

that modifies a transferee’s right to reuse 

collateral or margin (if such right 

previously existed), or any similar 

rights, in each case, other than a right 

or operation of a contractual provision 

arising solely from a change in the value 

of collateral or margin or a change in the 

amount of an economic exposure; and 

(2) Does not include any right under 

a contract that allows a party to 

terminate the contract on demand or at 

its option at a specified time, or from 

time to time, without the need to show 

cause. 

Eligible debt security means, with 

respect to a covered company: 

(1) New issuances. A debt instrument 

that: 


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(i) Is paid in, and issued by the 

covered company to, and remains held 

by, a person that is not an affiliate of the 

covered company; 

(ii) Is not secured, not guaranteed by 

the covered company or a subsidiary of 

the covered company, and is not subject 

to any other arrangement that legally or 

economically enhances the seniority of 

the instrument; 

(iii) Has a maturity of greater than or 

equal to one year from the date of 

issuance; 

(iv) Is governed by the laws of the 

United States or any State thereof; 

(v) Does not provide the holder of the 

instrument a contractual right to 

accelerate payment of principal or 

interest on the instrument, except a 

right that is exercisable on one or more 

dates that are specified in the 

instrument or in the event of: 

(A) A receivership, insolvency, 

liquidation, or similar proceeding of the 

covered company; or 

(B) A failure of the covered company 

to pay principal or interest on the 

instrument when due and payable that 

continues for 30 days or more; 

(vi) Does not have a credit-sensitive 

feature, such as an interest rate that is 

reset periodically based in whole or in 

part on the covered company’s credit 

quality, but may have an interest rate 

that is adjusted periodically 

independent of the covered company’s 

credit quality, in relation to general 

market interest rates or similar 

adjustments; 

(vii) Is not a structured note; 

(viii) Does not provide that the 

instrument may be converted into or 

exchanged for equity of the covered 

company; and 

(ix) Is not issued in denominations of 

less than $400,000 and must not be 

exchanged for smaller denominations by 

the covered company; and 

(2) Legacy long-term debt. A debt 

instrument issued prior to [DATE OF 

PUBLICATION OF FINAL RULE IN 

THE FEDERAL REGISTER], that: 

(i) Is paid in, and issued by the 

covered company or an insured 

depository institution that is a 

consolidated subsidiary of the covered 

company to, and remains held by, a 

person that is not an affiliate of the 

covered company; 

(ii) Is not secured, not guaranteed by 

the covered company or a subsidiary of 

the covered company, and is not subject 

to any other arrangement that legally or 

economically enhances the seniority of 

the instrument; 

(iii) Has a maturity of greater than or 

equal to one year from the date of 

issuance; 

(iv) Is governed by the laws of the 

United States or any State thereof; 

(v) Does not have a credit-sensitive 

feature, such as an interest rate that is 

reset periodically based in whole or in 

part on the covered company’s credit 

quality, but may have an interest rate 

that is adjusted periodically 

independent of the covered company’s 

credit quality, in relation to general 

market interest rates or similar 

adjustments; 

(vi) Is not a structured note; and 

(vii) Does not provide that the 

instrument may be converted into or 

exchanged for equity of the covered 

company’s. 

Insured depository institution has the 

same meaning as in section 3 of the 

Federal Deposit Insurance Act (12 

U.S.C. 1813). 

Outstanding eligible external longterm debt amount is defined in 

§ 238.182(b). 

Qualified financial contract has the 

same meaning as in section 210(c)(8)(D) 

of the Dodd-Frank Wall Street Reform 

and Consumer Protection Act (12 U.S.C. 

5390(c)(8)(D)). 

Structured note— 

(1) Means a debt instrument that: 

(i) Has a principal amount, 

redemption amount, or stated maturity 

that is subject to reduction based on the 

performance of any asset, entity, index, 

or embedded derivative or similar 

embedded feature; 

(ii) Has an embedded derivative or 

similar embedded feature that is linked 

to one or more equity securities, 

commodities, assets, or entities; 

(iii) Does not specify a minimum 

principal amount that becomes due 

upon acceleration or early termination; 

or 

(iv) Is not classified as debt under 

GAAP. 

(2) Notwithstanding paragraph (1) of 

this definition, an instrument is not a 

structured note solely because it is one 

or both of the following: 

(i) An instrument that is not 

denominated in U.S. dollars; or 

(ii) An instrument where interest 

payments are based on an interest rate 

index. 

Supplementary leverage ratio has the 

same meaning as in § 217.10(c)(1) of this 

chapter. 

Total leverage exposure has the same 

meaning as in § 217.10(c)(2) of this 

chapter. 

Total risk-weighted assets means— 

(1) For a covered company that has 

completed the parallel run process and 

received notification from the Board 

pursuant to § 217.121(d) of this chapter, 

the greater of— 

(i) Standardized total risk-weighted 

assets as defined in § 217.2 of this 

chapter; and 

(ii) Advanced approaches total riskweighted assets as defined in § 217.2 of 

this chapter; and 

(2) For any other covered company, 

standardized total risk-weighted assets 

as defined in § 217.2 of this chapter. 

U.S. Federal banking agency means 

the Board, the Federal Deposit 

Insurance Corporation, and the Office of 

the Comptroller of the Currency. 

§ 238.182 External long-term debt 

requirement. 

(a) External long-term debt 

requirement for covered companies. 

Except as provided under paragraph (c) 

of this section, a covered company must 

maintain an outstanding eligible 

external long-term debt amount that is 

no less than the amount equal to the 

greater of: 

(1) Six percent of the covered 

company’s total risk-weighted assets; 

(2) If the covered company is required 

to maintain a minimum supplementary 

leverage ratio under part 217 of this 

chapter, 2.5 percent of the covered 

company’s total leverage exposure; and 

(3) 3.5 percent of the covered 

company’s average total consolidated 

assets. 

(b) Outstanding eligible external longterm debt amount. (1) A covered 

company’s outstanding eligible external 

long-term debt amount is the sum of: 

(i) One hundred (100) percent of the 

amount due to be paid of unpaid 

principal of the outstanding eligible 

debt securities issued by the covered 

company in greater than or equal to two 

years; 

(ii) Fifty (50) percent of the amount 

due to be paid of unpaid principal of the 

outstanding eligible debt securities 

issued by the covered company in 

greater than or equal to one year and 

less than two years; and 

(iii) Zero (0) percent of the amount 

due to be paid of unpaid principal of the 

outstanding eligible debt securities 

issued by the covered company in less 

than one year. 

(2) For purposes of paragraph (b)(1) of 

this section, the date on which principal 

is due to be paid on an outstanding 

eligible debt security is calculated from 

the earlier of: 

(i) The date on which payment of 

principal is required under the terms 

governing the instrument, without 

respect to any right of the holder to 

accelerate payment of principal; and 

(ii) The date the holder of the 

instrument first has the contractual right 

to request or require payment of the 

amount of principal, provided that, with 


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respect to a right that is exercisable on 

one or more dates that are specified in 

the instrument only on the occurrence 

of an event (other than an event of a 

receivership, insolvency, liquidation, or 

similar proceeding of the covered 

company, or a failure of the covered 

company to pay principal or interest on 

the instrument when due), the date for 

the outstanding eligible debt security 

under this paragraph (b)(2)(ii) will be 

calculated as if the event has occurred. 

(3) After notice and response 

proceedings consistent with part 263, 

subpart E of this chapter the Board may 

order a covered company to exclude 

from its outstanding eligible long-term 

debt amount any debt security with one 

or more features that would 

significantly impair the ability of such 

debt security to take losses. 

(c) Redemption and repurchase. A 

covered company may not redeem or 

repurchase any outstanding eligible debt 

security without the prior approval of 

the Board if, immediately after the 

redemption or repurchase, the covered 

company would not meet its external 

long-term debt requirement under 

paragraph (a) of this section. 

§ 238.183 Restrictions on corporate 

practices. 

(a) Prohibited corporate practices. A 

covered company must not directly: 

(1) Issue any debt instrument with an 

original maturity of less than one year, 

including short term deposits and 

demand deposits, to any person, unless 

the person is a subsidiary of the covered 

company; 

(2) Issue any instrument, or enter into 

any related contract, with respect to 

which the holder of the instrument has 

a contractual right to offset debt owed 

by the holder or its affiliates to a 

subsidiary of the covered company 

against the amount, or a portion of the 

amount, owed by the covered company 

under the instrument; 

(3) Enter into a qualified financial 

contract with a person that is not a 

subsidiary of the covered company, 

except for a qualified financial contract 

that is: 

(i) A credit enhancement; 

(ii) An agreement with one or more 

underwriters, dealers, brokers, or other 

purchasers for the purpose of issuing or 

distributing the securities of the covered 

company, whether by means of an 

underwriting syndicate or through an 

individual dealer or broker; 

(iii) An agreement with an 

unaffiliated broker-dealer in connection 

with a stock repurchase plan of the 

covered company, where the covered 

company enters into a forward contract 

with the broker-dealer that is fully 

prepaid and where the broker-dealer 

agrees to purchase the issuer’s stock in 

the market over the term of the 

agreement in order to deliver the shares 

to the covered company; 

(iv) An agreement with an employee 

or director of the covered company 

granting the employee or director the 

right to purchase a specific number of 

shares of the covered company at a fixed 

price within a certain period of time, or, 

if such right is to be cash-settled, to 

receive a cash payment reflecting the 

difference between the agreed-upon 

price and the market price at the time 

the right is exercised; and 

(v) Any other agreement if the Board 

determines that exempting the 

agreement from the prohibition in this 

paragraph (a)(3) would not pose a 

material risk to the orderly resolution of 

the covered company or the stability of 

the U.S. banking or financial system. 

(4) Enter into an agreement in which 

the covered company guarantees a 

liability of a subsidiary of the covered 

company if such liability permits the 

exercise of a default right that is related, 

directly or indirectly, to the covered 

company becoming subject to a 

receivership, insolvency, liquidation, 

resolution, or similar proceeding other 

than a receivership proceeding under 

Title II of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

(12 U.S.C. 5381 through 5394) unless 

the liability is subject to requirements of 

the Board restricting such default rights 

or subject to any similar requirements of 

another U.S. Federal banking agency; or 

(5) Enter into, or otherwise begin to 

benefit from, any agreement that 

provides for its liabilities to be 

guaranteed by any of its subsidiaries. 

(b) Limit on unrelated liabilities. (1) 

The aggregate amount, on an 

unconsolidated basis, of unrelated 

liabilities of a covered company owed to 

persons that are not affiliates of the 

covered company may not exceed 5 

percent of the sum of the covered 

company’s: 

(i) Common equity tier 1 capital 

(excluding any common equity tier 1 

minority interest); 

(ii) Additional tier 1 capital 

(excluding any tier 1 minority interest); 

and 

(iii) Outstanding eligible long-term 

debt amount as calculated pursuant to 

§ 238.182(b). 

(2) For purposes of this paragraph (b), 

an unrelated liability is any 

noncontingent liability of the covered 

company owed to a person that is not 

an affiliate of the covered company 

other than: 

(i) The instruments included in the 

covered company’s common equity tier 

1 capital (excluding any common equity 

tier 1 minority interest), the covered 

company’s additional tier 1 capital 

(excluding any common equity tier 1 

minority interest), and the covered 

company’s outstanding eligible external 

LTD amount as calculated under 

§ 238.182(a); 

(ii) Any dividend or other liability 

arising from the instruments set forth in 

paragraph (b)(2)(i) of this section; 

(iii) An eligible debt security that does 

not provide the holder of the instrument 

with a currently exercisable right to 

require immediate payment of the total 

or remaining principal amount; and 

(iv) A secured liability, to the extent 

that it is secured, or a liability that 

otherwise represents a claim that would 

be senior to eligible debt securities in 

Title II of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

(12 U.S.C. 5390(b)) and the Bankruptcy 

Code (11 U.S.C. 101 et seq.). 

(c) Exemption from limit. A covered 

company is not subject to paragraph (b) 

of this section if all of the eligible debt 

securities issued by the covered 

company would represent the most 

subordinated debt claim in a 

receivership, insolvency, liquidation, or 

similar proceeding of the covered 

company. 

§ 238.184 Requirement to purchase 

subsidiary long-term debt. 

Whenever necessary for an insured 

depository institution that is a 

consolidated subsidiary of a covered 

company to satisfy the minimum longterm debt requirement set forth in 

§ 216.3(a) of this chapter, or § 54.3(a) or 

§ 374.3(a) of this title, if applicable, the 

covered company or any subsidiary of 

the covered company of which the 

insured depository institution is a 

consolidated subsidiary must purchase 

eligible internal debt securities, as 

defined in § 216.2 of this chapter, or 

§ 54.2 or § 374.2 of this title, if 

applicable, from the insured depository 

institution in the amount necessary to 

satisfy such requirement. 

PART 252—ENHANCED PRUDENTIAL 

STANDARDS (REGULATION YY) 

■ 12. The authority citation for part 252 

continues to read as follows: 

Authority: 12 U.S.C. 321–338a, 481–486, 

1467a, 1818, 1828, 1831n, 1831o, 1831p–1, 

1831w, 1835, 1844(b), 1844(c), 3101 et seq., 

3101 note, 3904, 3906–3909, 4808, 5361, 

5362, 5365, 5366, 5367, 5368, 5371. 

Subpart A—General Provisions 

■ 13. In § 252.2, add definitions for 

‘‘Additional tier 1 capital’’, ‘‘Common 

equity tier1 capital’’, ‘‘Common equity 


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tier 1 capital ratio’’, ‘‘Common equity 

tier 1 minority interest’’, ‘‘Discretionary 

bonus payment’’, ‘‘Distribution’’, ‘‘GSIB 

surcharge’’, ‘‘Insured depository 

institution’’, ‘‘Supplementary leverage 

ratio’’, ‘‘Tier 1 capital’’, ‘‘Tier 1 minority 

interest’’, ‘‘Tier 2 capital’’, ‘‘Total 

leverage exposure’’, ‘‘Total riskweighted assets’’, and ‘‘U.S. Federal 

banking agency’’ to read as follows: 

§ 252.2 Definitions. 

* * * * * 

Additional tier 1 capital has the same 

meaning as in § 217.20(c) of this 

chapter. 

* * * * * 

Common equity tier 1 capital has the 

same meaning as in § 217.20(b) of this 

chapter. 

Common equity tier 1 capital ratio has 

the same meaning as in §§ 217.10(b)(1) 

and (d)(1) of this chapter, as applicable. 

Common equity tier 1 minority 

interest has the same meaning as in 

§ 217.2 of this chapter. 

* * * * * 

Discretionary bonus payment has the 

same meaning as in § 217.2 of this 

chapter. 

Distribution has the same meaning as 

in § 217.2 of this chapter. 

* * * * * 

GSIB surcharge has the same meaning 

as in § 217.2 of this chapter. 

* * * * * 

Insured depository institution has the 

same meaning as in section 3 of the 

Federal Deposit Insurance Act (12 

U.S.C. 1813). 

* * * * * 

Supplementary leverage ratio has the 

same meaning as in 217.10(c)(1) of this 

chapter. 

Tier 1 capital has the same meaning 

as in § 217.2 of this chapter. 

Tier 1 minority interest has the same 

meaning as in § 217.2 of this chapter. 

Tier 2 capital has the same meaning 

as in § 217.20(d) of this chapter. 

* * * * * 

Total leverage exposure has the same 

meaning as in § 217.10(c)(2) of this 

chapter. 

* * * * * 

Total risk-weighted assets means— 

(1) For a bank holding company, or a 

U.S. intermediate holding company, 

that has completed the parallel run 

process and received notification from 

the Board pursuant to § 217.121(d) of 

this chapter, the greater of— 

(i) Standardized total risk-weighted 

assets as defined in § 217.2 of this 

chapter; and 

(ii) Advanced approaches total riskweighted assets as defined in § 217.2 of 

this chapter; and 

(2) For any other bank holding 

company or U.S. intermediate holding 

company, standardized total riskweighted assets as defined in § 217.2 of 

this chapter. 

* * * * * 

U.S. Federal banking agency means 

the Board, the Federal Deposit 

Insurance Corporation, and the Office of 

the Comptroller of the Currency. 

* * * * * 

■ 14. Revise subpart G to read as 

follows: 

Subpart G—External Long-Term Debt 

Requirement, External Total LossAbsorbing Capacity Requirement and 

Buffer, and Restrictions on Corporate 

Practices for U.S. Banking Organizations 

With Total Consolidated Assets of $100 

Billion or More 

Sec. 

252.60 Applicability and reservation of 

authority. 

252.61 Definitions. 

252.62 External long-term debt 

requirement. 

252.63 External total loss-absorbing 

capacity requirement and buffer for 

global systemically important BHCs. 

252.64 Restrictions on corporate practices. 

252.65 Requirement to purchase subsidiary 

long-term debt. 

252.66 Disclosure requirements. 

§ 252.60 Applicability and reservation of 

authority. 

(a) General applicability. This subpart 

applies to any global systemically 

important BHC, Category II bank 

holding company, Category III bank 

holding company, or Category IV bank 

holding company, in each case that is 

not a covered IHC as defined in 

§ 252.161. 

(b) Initial applicability. A covered 

BHC must comply with the 

requirements of this subpart beginning 

on: 

(1) In the case of a global systemically 

important BHC, three years after the 

date on which the company becomes a 

global systemically important BHC. 

(2) In the case of a covered BHC that 

is not a global systemically important 

BHC, the later of: 

(i) [THREE YEARS AFTER THE DATE 

OF THE FINAL RULE PUBLISHED IN 

THE FEDERAL REGISTER; or 

(ii) Three years after the date on 

which the company becomes subject to 

this part or to part 238, subpart T of this 

chapter. 

(c) Timing. Notwithstanding 

paragraph (b) of this section, a covered 

BHC that is not a global systemically 

important BHC must have an 

outstanding eligible long-term debt 

amount that is no less than: 

(1) 25 percent of the amount required 

under § 252.62 by one year after the date 

on which the covered BHC first becomes 

subject to this subpart or part 238, 

subpart T of this chapter; and 

(2) 50 percent of the amount required 

under § 252.62 by two years after the 

date on which the covered BHC first 

becomes subject to this subpart or part 

238, subpart T of this chapter. 

(d) Transition to global systemically 

important BHC. During the three-year 

period set forth in paragraph (b)(1) of 

this section, a global systemically 

important BHC must continue to 

comply with the requirements of this 

subpart that applied to the covered BHC 

the day before the date on which the 

covered BHC became a global 

systemically important BHC. 

(e) Reservation of authority. The 

Board may require a covered BHC to 

maintain an outstanding eligible 

external long-term debt amount or 

outstanding external total loss-absorbing 

capacity amount, if applicable, that is 

greater than or less than what is 

otherwise required under this subpart if 

the Board determines that the 

requirements under this subpart are not 

commensurate with the risk the 

activities of the covered BHC pose to 

public and private stakeholders in the 

event of material distress and failure of 

the covered company. In making a 

determination under this paragraph (e), 

the Board will apply notice and 

response procedures in the same 

manner and to the same extent as the 

notice and response procedures in 

§ 263.202 of this chapter. 

§ 252.61 Definitions. 

For purposes of this subpart: 

Covered BHC means a global 

systemically important BHC, Category II 

bank holding company, Category III 

bank holding company, or Category IV 

bank holding company, in each case 

that is not a covered IHC as defined in 

§ 252.161. 

Default right: 

(1) Means any: 

(i) Right of a party, whether 

contractual or otherwise (including 

rights incorporated by reference to any 

other contract, agreement, or document, 

and rights afforded by statute, civil 

code, regulation, and common law), to 

liquidate, terminate, cancel, rescind, or 

accelerate the agreement or transactions 

thereunder, set off or net amounts owing 

in respect thereto (except rights related 

to same-day payment netting), exercise 

remedies in respect of collateral or other 

credit support or property related 

thereto (including the purchase and sale 

of property), demand payment or 

delivery thereunder or in respect thereof 

(other than a right or operation of a 

contractual provision arising solely from 


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a change in the value of collateral or 

margin or a change in the amount of an 

economic exposure), suspend, delay, or 

defer payment or performance 

thereunder, modify the obligations of a 

party thereunder or any similar rights; 

and 

(ii) Right or contractual provision that 

alters the amount of collateral or margin 

that must be provided with respect to an 

exposure thereunder, including by 

altering any initial amount, threshold 

amount, variation margin, minimum 

transfer amount, the margin value of 

collateral or any similar amount, that 

entitles a party to demand the return of 

any collateral or margin transferred by 

it to the other party or a custodian or 

that modifies a transferee’s right to reuse 

collateral or margin (if such right 

previously existed), or any similar 

rights, in each case, other than a right 

or operation of a contractual provision 

arising solely from a change in the value 

of collateral or margin or a change in the 

amount of an economic exposure; and 

(2) Does not include any right under 

a contract that allows a party to 

terminate the contract on demand or at 

its option at a specified time, or from 

time to time, without the need to show 

cause. 

Eligible debt security means, with 

respect to a covered BHC: 

(1) New issuances. A debt instrument 

that: 

(i) Is paid in, and issued by the 

covered BHC to, and remains held by, 

a person that is not an affiliate of the 

covered BHC; 

(ii) Is not secured, not guaranteed by 

the covered BHC or a subsidiary of the 

covered BHC, and is not subject to any 

other arrangement that legally or 

economically enhances the seniority of 

the instrument; 

(iii) Has a maturity of greater than or 

equal to one year from the date of 

issuance; 

(iv) Is governed by the laws of the 

United States or any State thereof; 

(v) Does not provide the holder of the 

instrument a contractual right to 

accelerate payment of principal or 

interest on the instrument, except a 

right that is exercisable on one or more 

dates that are specified in the 

instrument or in the event of: 

(A) A receivership, insolvency, 

liquidation, or similar proceeding of the 

covered BHC; or 

(B) A failure of the covered BHC to 

pay principal or interest on the 

instrument when due and payable that 

continues for 30 days or more; 

(vi) Does not have a credit-sensitive 

feature, such as an interest rate that is 

reset periodically based in whole or in 

part on the covered BHC’s credit 

quality, but may have an interest rate 

that is adjusted periodically 

independent of the covered BHC’s credit 

quality, in relation to general market 

interest rates or similar adjustments; 

(vii) Is not a structured note; 

(viii) Does not provide that the 

instrument may be converted into or 

exchanged for equity of the covered 

BHC; and 

(ix) In the case of a debt instrument 

issued on or after [DATE OF 

PUBLICATION OF FINAL RULE IN 

THE FEDERAL REGISTER], is not 

issued in denominations of less than 

$400,000 and must not be exchanged for 

smaller denominations by the covered 

BHC; and 

(2) Legacy long-term debt issued by a 

global systemically important BHC. A 

debt instrument issued prior to 

December 31, 2016 that: 

(i) Is paid in, and issued by the global 

systemically important BHC; 

(ii) Is not secured, not guaranteed by 

the global systemically important BHC 

or a subsidiary of the global 

systemically important BHC, and is not 

subject to any other arrangement that 

legally or economically enhances the 

seniority of the instrument; 

(iii) Has a maturity of greater than or 

equal to one year from the date of 

issuance; 

(iv) Does not have a credit-sensitive 

feature, such as an interest rate that is 

reset periodically based in whole or in 

part on the global systemically 

important BHC’s credit quality, but may 

have an interest rate that is adjusted 

periodically independent of the global 

systemically important BHC’s credit 

quality, in relation to general market 

interest rates or similar adjustments; 

(v) Is not a structured note; and 

(vi) Does not provide that the 

instrument may be converted into or 

exchanged for equity of the global 

systemically important BHC. 

(3) Legacy long-term debt issued by a 

covered BHC that is not a global 

systemically important BHC, or by its 

consolidated subsidiary insured 

depository institution. With respect to a 

covered BHC that is not a global 

systemically important BHC, a debt 

instrument issued prior to [DATE OF 

PUBLICATION OF FINAL RULE IN 

THE FEDERAL REGISTER], that: 

(i) Is paid in, and issued by the 

covered BHC or an insured depository 

institution that is a consolidated 

subsidiary of the covered BHC to, and 

remains held by, a person that is not an 

affiliate of the covered BHC; 

(ii) Is not secured, not guaranteed by 

the covered BHC or a subsidiary of the 

covered BHC, and is not subject to any 

other arrangement that legally or 

economically enhances the seniority of 

the instrument; 

(iii) Has a maturity of greater than or 

equal to one year from the date of 

issuance; 

(iv) Is governed by the laws of the 

United States or any State thereof; 

(v) Does not have a credit-sensitive 

feature, such as an interest rate that is 

reset periodically based in whole or in 

part on the covered BHC’s or insured 

depository institution’s credit quality, 

but may have an interest rate that is 

adjusted periodically independent of 

the covered BHC’s or insured depository 

institution’s credit quality, in relation to 

general market interest rates or similar 

adjustments; 

(vi) Is not a structured note; and 

(vii) Does not provide that the 

instrument may be converted into or 

exchanged for equity of the covered 

BHC or an insured depository 

institution that is a consolidated 

subsidiary of the covered BHC. 

External TLAC risk-weighted buffer 

means, with respect to a global 

systemically important BHC, the sum of 

2.5 percent, any applicable 

countercyclical capital buffer under 12 

CFR 217.11(b) (expressed as a 

percentage), and the global systemically 

important BHC’s method 1 capital 

surcharge. 

Method 1 capital surcharge means, 

with respect to a global systemically 

important BHC, the most recent method 

1 capital surcharge (expressed as a 

percentage) the global systemically 

important BHC was required to 

calculate pursuant to subpart H of 

Regulation Q (12 CFR 217.400 through 

217.406). 

Outstanding eligible external longterm debt amount is defined in 

§ 252.62(c). 

Person has the same meaning as in 

§ 225.2(l) of this chapter. 

Qualified financial contract has the 

same meaning as in section 210(c)(8)(D) 

of Title II of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

(12 U.S.C. 5390(c)(8)(D)). 

Structured note— 

(1) Means a debt instrument that: 

(i) Has a principal amount, 

redemption amount, or stated maturity 

that is subject to reduction based on the 

performance of any asset, entity, index, 

or embedded derivative or similar 

embedded feature; 

(ii) Has an embedded derivative or 

similar embedded feature that is linked 

to one or more equity securities, 

commodities, assets, or entities; 

(iii) Does not specify a minimum 

principal amount that becomes due 

upon acceleration or early termination; 

or 


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(iv) Is not classified as debt under 

GAAP. 

(2) Notwithstanding paragraph (1) of 

this definition, an instrument is not a 

structured note solely because it is one 

or both of the following: 

(i) An instrument that is not 

denominated in U.S. dollars; or 

(ii) An instrument where interest 

payments are based on an interest rate 

index. 

§ 252.62 External long-term debt 

requirement. 

(a) External long-term debt 

requirement for global systemically 

important BHCs. Except as provided 

under paragraph (d) of this section, a 

global systemically important BHC must 

maintain an outstanding eligible 

external long-term debt amount that is 

no less than the amount equal to the 

greater of: 

(1) The global systemically important 

BHC’s total risk-weighted assets 

multiplied by the sum of 6 percent plus 

the global systemically important BHC’s 

GSIB surcharge (expressed as a 

percentage); and 

(2) 4.5 percent of the global 

systemically important BHC’s total 

leverage exposure. 

(b) External long-term debt 

requirement for covered BHCs that are 

not global systemically important BHCs. 

Except as provided under paragraph (d) 

of this section, a covered BHC that is not 

a global systemically important BHC 

must maintain an outstanding eligible 

external long-term debt amount that is 

no less than the amount equal to the 

greater of: 

(1) 6 percent of the total risk-weighted 

assets of the covered BHC that is not a 

global systemically important BHC; 

(2) 2.5 percent of the leverage 

exposure of the covered BHC that is not 

a global systemically important BHC, if 

the covered BHC is required to maintain 

a minimum supplementary leverage 

ratio under part 217 of this chapter; and 

(3) 3.5 percent of the average total 

consolidated assets of the covered BHC 

that is not a global systemically 

important BHC. 

(c) Outstanding eligible external longterm debt amount. 

(1) A covered BHC’s outstanding 

eligible external long-term debt amount 

is the sum of: 

(i) One hundred (100) percent of the 

amount due to be paid of unpaid 

principal of the outstanding eligible 

debt securities issued by the covered 

BHC in greater than or equal to two 

years; 

(ii) Fifty (50) percent of the amount 

due to be paid of unpaid principal of the 

outstanding eligible debt securities 

issued by the covered BHC in greater 

than or equal to one year and less than 

two years; and 

(iii) Zero (0) percent of the amount 

due to be paid of unpaid principal of the 

outstanding eligible debt securities 

issued by the covered BHC in less than 

one year. 

(2) For purposes of paragraph (c)(1) of 

this section, the date on which principal 

is due to be paid on an outstanding 

eligible debt security is calculated from 

the earlier of: 

(i) The date on which payment of 

principal is required under the terms 

governing the instrument, without 

respect to any right of the holder to 

accelerate payment of principal; and 

(ii) The date the holder of the 

instrument first has the contractual right 

to request or require payment of the 

amount of principal, provided that, with 

respect to a right that is exercisable on 

one or more dates that are specified in 

the instrument only on the occurrence 

of an event (other than an event of a 

receivership, insolvency, liquidation, or 

similar proceeding of the covered BHC, 

or a failure of the covered BHC to pay 

principal or interest on the instrument 

when due), the date for the outstanding 

eligible debt security under this 

paragraph (c)(2)(ii) will be calculated as 

if the event has occurred. 

(3) After notice and response 

proceedings consistent with 12 CFR part 

263, subpart E, the Board may order a 

covered BHC to exclude from its 

outstanding eligible long-term debt 

amount any debt security with one or 

more features that would significantly 

impair the ability of such debt security 

to take losses. 

(d) Redemption and repurchase. A 

covered BHC may not redeem or 

repurchase any outstanding eligible debt 

security without the prior approval of 

the Board if, immediately after the 

redemption or repurchase, the covered 

BHC would not meet its external longterm debt requirement under paragraphs 

(a) or (b) of this section, or, if applicable, 

its external total loss-absorbing capacity 

requirement under § 252.63(a). 

§ 252.63 External total loss-absorbing 

capacity requirement and buffer for global 

systemically important BHCs. 

(a) External total loss-absorbing 

capacity requirement. A global 

systemically important BHC must 

maintain an outstanding external total 

loss-absorbing capacity amount that is 

no less than the amount equal to the 

greater of: 

(1) 18 percent of the global 

systemically important BHC’s total riskweighted assets; and 

(2) 7.5 percent of the global 

systemically important BHC’s total 

leverage exposure. 

(b) Outstanding external total lossabsorbing capacity amount. A global 

systemically important BHC’s 

outstanding external total loss-absorbing 

capacity amount is the sum of: 

(1) The global systemically important 

BHC’s common equity tier 1 capital 

(excluding any common equity tier 1 

minority interest); 

(2) The global systemically important 

BHC’s additional tier 1 capital 

(excluding any tier 1 minority interest); 

and 

(3) The global systemically important 

BHC’s outstanding eligible external 

long-term debt amount as calculated 

pursuant § 252.62(c). 

(c) External TLAC buffer— 

(1) Composition of the external TLAC 

risk-weighted buffer. The external TLAC 

risk-weighted buffer is composed solely 

of common equity tier 1 capital. 

(2) Definitions. For purposes of this 

paragraph (c), the following definitions 

apply: 

(i) Eligible retained income. The 

eligible retained income of a global 

systemically important BHC is the 

greater of: 

(A) The global systemically important 

BHC’s net income, calculated in 

accordance with the instructions to the 

FR Y–9C, for the four calendar quarters 

preceding the current calendar quarter, 

net of any distributions and associated 

tax effects not already reflected in net 

income; and 

(B) The average of the global 

systemically important BHC’s net 

income, calculated in accordance with 

the instructions to the FR Y–9C, for the 

four calendar quarters preceding the 

current calendar quarter. 

(ii) Maximum external TLAC riskweighted payout ratio. The maximum 

external TLAC risk-weighted payout 

ratio is the percentage of eligible 

retained income that a global 

systemically important BHC can pay out 

in the form of distributions and 

discretionary bonus payments during 

the current calendar quarter. The 

maximum external TLAC risk-weighted 

payout ratio is based on the global 

systemically important BHC’s external 

TLAC risk-weighted buffer level, 

calculated as of the last day of the 

previous calendar quarter, as set forth in 

Table 1 to paragraph (c)(2)(iii) of this 

section. 

(iii) Maximum external TLAC riskweighted payout amount. A global 

systemically important BHC’s maximum 

external TLAC risk-weighted payout 

amount for the current calendar quarter 

is equal to the global systemically 


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important BHC’s eligible retained 

income, multiplied by the applicable 

maximum external TLAC risk-weighted 

payout ratio, as set forth in Table 1 to 

this paragraph (c)(2)(iii). 

TABLE 1 TO PARAGRAPH (c)(2)(iii)—CALCULATION OF MAXIMUM EXTERNAL TLAC RISK-WEIGHTED PAYOUT AMOUNT

External TLAC risk-weighted buffer level 

Maximum external TLAC 

risk-weighted payout ratio 

(as a percentage of eligible 

retained income) 

Greater than the external TLAC risk-weighted buffer ................................................................................................... No payout ratio limitation 

applies. 

Less than or equal to the external TLAC risk-weighted buffer, and greater than 75 percent of the external TLAC 

risk-weighted buffer.

60 percent. 

Less than or equal to 75 percent of the external TLAC risk-weighted buffer, and greater than 50 percent of the external TLAC risk-weighted buffer.40 percent. 

Less than or equal to 50 percent of the external TLAC risk-weighted buffer, and greater 25 percent of the external 

TLAC risk-weighted buffer.

20 percent. 

Less than or equal to 25 percent of the external TLAC risk-weighted buffer ............................................................... 0 percent. 

(iv) Maximum external TLAC leverage 

payout ratio. The maximum external 

TLAC leverage payout ratio is the 

percentage of eligible retained income 

that a global systemically important 

BHC can pay out in the form of 

distributions and discretionary bonus 

payments during the current calendar 

quarter. The maximum external TLAC 

leverage payout ratio is based on the 

global systemically important BHC’s 

external TLAC leverage buffer level, 

calculated as of the last day of the 

previous calendar quarter, as set forth in 

Table 2 to paragraph (c)(2)(v) of this 

section. 

(v) Maximum external TLAC leverage 

payout amount. A global systemically 

important BHC’s maximum external 

TLAC leverage payout amount for the 

current calendar quarter is equal to the 

global systemically important BHC’s 

eligible retained income, multiplied by 

the applicable maximum TLAC leverage 

payout ratio, as set forth in Table 2 to 

this paragraph (c)(2)(v). 

TABLE 2 TO PARAGRAPH (c)(2)(v)—CALCULATION OF MAXIMUM EXTERNAL TLAC LEVERAGE PAYOUT AMOUNT

External TLAC leverage buffer level 

Maximum external TLAC 

leverage payout ratio 

(as a percentage of eligible 

retained income) 

Greater than 2.0 percent ............................................................................................................................................... No payout ratio limitation 

applies. 

Less than or equal to 2.0 percent, and greater than 1.5 percent ................................................................................. 60 percent. 

Less than or equal to 1.5 percent, and greater than 1.0 percent ................................................................................. 40 percent. 

Less than or equal to 1.0 percent, and greater than 0.5 percent ................................................................................. 20 percent. 

Less than or equal to 0.5 percent ................................................................................................................................. 0 percent. 

(3) Calculation of the external TLAC 

risk-weighted buffer level. (i) A global 

systemically important BHC’s external 

TLAC risk-weighted buffer level is equal 

to the global systemically important 

BHC’s common equity tier 1 capital 

ratio (expressed as a percentage) minus 

the greater of zero and the following 

amount: 

(A) 18 percent; minus 

(B) The ratio (expressed as a 

percentage) of the global systemically 

important BHC’s additional tier 1 

capital (excluding any tier 1 minority 

interest) to its total risk-weighted assets; 

and minus 

(C) The ratio (expressed as a 

percentage) of the global systemically 

important BHC’s outstanding eligible 

external long-term debt amount as 

calculated in § 252.62(c) to total riskweighted assets. 

(ii) Notwithstanding paragraph 

(c)(3)(i) of this section, if the ratio 

(expressed as a percentage) of a global 

systemically important BHC’s external 

total loss-absorbing capacity amount as 

calculated under paragraph (b) of this 

section to its risk-weighted assets is less 

than or equal to 18 percent, the global 

systemically important BHC’s external 

TLAC risk-weighted buffer level is zero. 

(4) Limits on distributions and 

discretionary bonus payments. (i) A 

global systemically important BHC shall 

not make distributions or discretionary 

bonus payments or create an obligation 

to make such distributions or payments 

during the current calendar quarter that, 

in the aggregate, exceed the maximum 

external TLAC risk-weighted payout 

amount or the maximum external TLAC 

leverage payout amount. 

(ii) A global systemically important 

BHC with an external TLAC riskweighted buffer level that is greater than 

the external TLAC risk-weighted buffer 

and an external TLAC leverage buffer 

level that is greater than 2.0 percent, in 

accordance with paragraph (c)(5) of this 

section, is not subject to a maximum 

external TLAC risk-weighted payout 

amount or a maximum external TLAC 

leverage payout amount. 

(iii) Except as provided in paragraph 

(c)(4)(iv) of this section, a global 

systemically important BHC may not 

make distributions or discretionary 

bonus payments during the current 

calendar quarter if the global 

systemically important BHC’s: 

(A) Eligible retained income is 

negative; and 

(B) External TLAC risk-weighted 

buffer level was less than the external 

TLAC risk-weighted buffer as of the end 

of the previous calendar quarter or 

external TLAC leverage buffer level was 

less than 2.0 percent as of the end of the 

previous calendar quarter. 

(iv) Notwithstanding the limitations 

in paragraphs (c)(4)(i) through (iii) of 


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this section, the Board may permit a 

global systemically important BHC to 

make a distribution or discretionary 

bonus payment upon a request of the 

global systemically important BHC, if 

the Board determines that the 

distribution or discretionary bonus 

payment would not be contrary to the 

purposes of this section, or to the safety 

and soundness of the global 

systemically important BHC. In making 

such a determination, the Board will 

consider the nature and extent of the 

request and the particular circumstances 

giving rise to the request. 

(v)(A) A global systemically important 

BHC is subject to the lowest of the 

maximum payout amounts as 

determined under § 217.11(a)(2) of this 

chapter, the maximum external TLAC 

risk-weighted payout amount as 

determined under this paragraph (c), 

and the maximum external TLAC 

leverage payout amount as determined 

under this paragraph (c). 

(B) Additional limitations on 

distributions may apply to a global 

systemically important BHC under 

§§ 225.4, 225.8, and 263.202 of this 

chapter. 

(5) External TLAC leverage buffer— 

(i) General. A global systemically 

important BHC is subject to the lower of 

the maximum external TLAC riskweighted payout amount as determined 

under paragraph (c)(2)(iii) of this section 

and the maximum external TLAC 

leverage payout amount as determined 

under paragraph (c)(2)(v) of this section. 

(ii) Composition of the external TLAC 

leverage buffer. The external TLAC 

leverage buffer is composed solely of 

tier 1 capital. 

(iii) Calculation of the external TLAC 

leverage buffer level. (A) A global 

systemically important BHC’s external 

TLAC leverage buffer level is equal to 

the global systemically important BHC’s 

supplementary leverage ratio (expressed 

as a percentage) minus the greater of 

zero and the following amount: 

(1) 7.5 percent; minus 

(2) The ratio (expressed as a 

percentage) of the global systemically 

important BHC’s outstanding eligible 

external long-term debt amount as 

calculated in § 252.62(c) to total 

leverage exposure. 

(B) Notwithstanding paragraph 

(c)(5)(iii) of this section, if the ratio 

(expressed as a percentage) of a global 

systemically important BHC’s external 

total loss-absorbing capacity amount as 

calculated under paragraph (b) of this 

section to its total leverage exposure is 

less than or equal to 7.5 percent, the 

global systemically important BHC’s 

external TLAC leverage buffer level is 

zero. 

§ 252.64 Restrictions on corporate 

practices. 

(a) Prohibited corporate practices. A 

covered BHC must not directly: 

(1) Issue any debt instrument with an 

original maturity of less than one year, 

including short term deposits and 

demand deposits, to any person, unless 

the person is a subsidiary of the covered 

BHC; 

(2) Issue any instrument, or enter into 

any related contract, with respect to 

which the holder of the instrument has 

a contractual right to offset debt owed 

by the holder or its affiliates to a 

subsidiary of the covered BHC against 

the amount, or a portion of the amount, 

owed by the covered BHC under the 

instrument; 

(3) Enter into a qualified financial 

contract with a person that is not a 

subsidiary of the covered BHC, except 

for a qualified financial contract that is: 

(i) A credit enhancement; 

(ii) An agreement with one or more 

underwriters, dealers, brokers, or other 

purchasers for the purpose of issuing or 

distributing the securities of the covered 

BHC, whether by means of an 

underwriting syndicate or through an 

individual dealer or broker; 

(iii) An agreement with an 

unaffiliated broker-dealer in connection 

with a stock repurchase plan of the 

covered BHC, where the covered BHC 

enters into a forward contract with the 

broker-dealer that is fully prepaid and 

where the broker-dealer agrees to 

purchase the covered BHC’s stock in the 

market over the term of the agreement 

in order to deliver the shares to the 

covered BHC; 

(iv) An agreement with an employee 

or director of the covered BHC granting 

the employee or director the right to 

purchase a specific number of shares of 

the covered BHC at a fixed price within 

a certain period of time, or, if such right 

is to be cash-settled, to receive a cash 

payment reflecting the difference 

between the agreed-upon price and the 

market price at the time the right is 

exercised; and 

(v) Any other agreement for which the 

Board determines that exempting the 

agreement from the prohibition in this 

paragraph (a)(3) would not pose a 

material risk to the orderly resolution of 

the covered BHC or the stability of the 

U.S. banking or financial system. 

(4) Enter into an agreement in which 

the covered BHC guarantees a liability 

of a subsidiary of the covered BHC if 

such liability permits the exercise of a 

default right that is related, directly or 

indirectly, to the covered BHC becoming 

subject to a receivership, insolvency, 

liquidation, resolution, or similar 

proceeding other than a receivership 

proceeding under Title II of the DoddFrank Wall Street Reform and Consumer 

Protection Act (12 U.S.C. 5381 through 

5394) unless the liability is subject to 

requirements of the Board restricting 

such default rights or subject to any 

similar requirements of another U.S. 

Federal banking agency; or 

(5) Enter into, or otherwise begin to 

benefit from, any agreement that 

provides for its liabilities to be 

guaranteed by any of its subsidiaries. 

(b) Limit on unrelated liabilities. (1) 

The aggregate amount, on an 

unconsolidated basis, of unrelated 

liabilities of a covered BHC owed to 

persons that are not affiliates of the 

covered BHC must not exceed: 

(i) In the case of a global systemically 

important BHC, 5 percent of the covered 

BHC’s external total loss-absorbing 

capacity amount, as calculated under 

§ 252.63(b); and 

(ii) In the case of a covered BHC that 

is not a global systemically important 

BHC, 5 percent of the sum of the 

covered BHC’s: 

(A) Common equity tier 1 capital 

(excluding any common equity tier 1 

minority interest); 

(B) Additional tier 1 capital 

(excluding any tier 1 minority interest); 

and 

(C) Outstanding eligible external longterm debt amount as calculated 

pursuant to § 252.62(c). 

(2) For purposes of paragraph (b)(1) of 

this section, an unrelated liability is any 

non-contingent liability of the covered 

BHC owed to a person that is not an 

affiliate of the covered BHC other than: 

(i) The instruments included in the 

covered BHC’s common equity tier 1 

capital (excluding any common equity 

tier 1 minority interest), the covered 

BHC’s additional tier 1 capital 

(excluding any common equity tier 1 

minority interest), and the covered 

BHC’s outstanding eligible external LTD 

amount as calculated under § 252.62(a) 

or § 252.62(b), as applicable; 

(ii) Any dividend or other liability 

arising from the instruments described 

in paragraph (b)(2)(i) of this section; 

(iii) An eligible debt security that does 

not provide the holder of the instrument 

with a currently exercisable right to 

require immediate payment of the total 

or remaining principal amount; and 

(iv) A secured liability, to the extent 

that it is secured, or a liability that 

otherwise represents a claim that would 

be senior to eligible debt securities in 

Title II of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

(12 U.S.C. 5390(b)) and the Bankruptcy 

Code (11 U.S.C. 101 et seq.). 

(c) A covered BHC is not subject to 

paragraph (b) of this section if all of the 


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eligible debt securities issued by the 

covered BHC would represent the most 

subordinated debt claim in a 

receivership, insolvency, liquidation, or 

similar proceeding of the covered BHC. 

§ 252.65 Requirement to purchase 

subsidiary long-term debt. 

Whenever necessary for an insured 

depository institution that is a 

consolidated subsidiary of a covered 

BHC to satisfy the minimum long-term 

debt requirement set forth in § 216.3(a) 

of this chapter, or § 54.3(a) or § 374.3(a) 

of this title, if applicable, the covered 

BHC or any subsidiary of the covered 

BHC of which the insured depository 

institution is a consolidated subsidiary 

must purchase eligible internal debt 

securities, as defined in § 216.2 of this 

chapter, or § 54.2 or § 374.2 of this title, 

if applicable, from the insured 

depository institution in the amount 

necessary to satisfy such requirement. 

§ 252.66 Disclosure requirements for 

global systemically important BHCs. 

(a) Financial consequences disclosure. 

(1) A global systemically important BHC 

must publicly disclose a description of 

the financial consequences to unsecured 

debtholders of the global systemically 

important BHC entering into a 

resolution proceeding in which the 

global systemically important BHC is 

the only entity that would be subject to 

the resolution proceeding. 

(2) A global systemically important 

BHC must provide the disclosure 

required by paragraph (a)(1) of this 

section: 

(i) In the offering documents for all of 

its eligible debt securities issued after 

the global systemically important BHC 

becomes subject to this subpart; and 

(ii) Either: 

(A) On the global systemically 

important BHC’s website; or 

(B) In more than one public financial 

report or other public regulatory reports, 

provided that the global systemically 

important BHC publicly provides a 

summary table specifically indicating 

the location(s) of this disclosure. 

(b) Creditor ranking disclosures for 

global systemically important BHCs—(1) 

In general. Subject to the requirements 

of this paragraph (b), a global 

systemically important BHC must 

publicly disclose the information set 

forth in Table 1 to paragraph (b)(5)(iii) 

of this section in a format that is 

substantially similar to that of Table 1 

to paragraph (b)(5)(iii) of this section. 

(2) Timing and method of disclosure. 

(i) A global systemically important BHC 

must provide the public disclosure 

required by paragraph (b)(1) of this 

section on a timely basis at least every 

six months in a direct and prominent 

manner either: 

(A) On the global systemically 

important BHC’s website; or 

(B) In more than one public financial 

report or other public regulatory reports, 

provided that the global systemically 

important BHC publicly provides a 

summary table specifically indicating 

the location(s) of this disclosure. 

(ii) A global systemically important 

BHC must make a public disclosure 

required by paragraph (b)(1) of this 

section publicly available for at least 

three years after the public disclosure is 

initially made. 

(3) Requirements for the board of 

directors and senior officers. A global 

systemically important BHC must 

comply with the requirements in 

§ 217.62(b) of this chapter with respect 

to the disclosure required by paragraph 

(b)(1) of this section. 

(4) Columns. (i) The table required by 

paragraph (b)(1) of this section must 

include the same first and last columns 

as Table 1 to paragraph (b)(5)(iii) of this 

section. 

(ii) The table required by paragraph 

(b)(1) of this section must include a 

separate column for each category of 

liability or equity instrument issued by 

the global systemically important BHC 

that: 

(A) Is reported on the global 

systemically important BHC’s balance 

sheet as a liability of, or equity 

instrument issued by, the global 

systemically important BHC; and 

(B) Would represent a claim with a 

priority equal to or less than the claim 

represented by the global systemically 

important BHC’s most senior class of 

eligible debt security under the 

Bankruptcy Code (11 U.S.C. 101 et seq.). 

(C) Notwithstanding paragraphs 

(b)(4)(ii)(A) and (B), liabilities or equity 

instruments issued by the global 

systemically important BHC that would 

have the same ranking under the 

Bankruptcy Code (11 U.S.C. 101 et seq.) 

may be aggregated and reported in the 

same column. 

(iii) The columns for each ranking 

position must be reported in the table in 

order from most junior claim level to 

most senior claim level. 

(5) Rows. For purposes of the 

disclosure required under this 

paragraph (b): 

(i) The amount required by row 2 

equals the total balance sheet amount 

associated with the global systemically 

important BHC’s liabilities and 

outstanding equity instruments in the 

applicable column. 

(ii) For purposes of row 3, ‘‘excluded 

liabilities’’ refers to liabilities reported 

in row 2 that are: 

(A) Derivative liabilities; 

(B) Structured notes; 

(C) Liabilities not arising through a 

contract, including tax liabilities; 

(D) Liabilities which that have a 

greater priority than senior unsecured 

creditors under the Bankruptcy Code 

(11 U.S.C. 101 et seq.); or 

(E) Any liabilities that, under the laws 

of the United States or any State 

applicable to the global systemically 

important BHC, may not be written 

down or converted into equity by a 

resolution authority or bankruptcy court 

without giving rise to material risk of 

successful legal challenge or valid 

compensation claims. 

(iii) For purposes of rows 3 through 5, 

‘‘TLAC’’ refers to outstanding external 

total loss-absorbing capacity amount as 

defined in § 252.63(b). 

TABLE 1 TO PARAGRAPH (b)(5)(iii)—CREDITOR RANKING FOR RESOLUTION ENTITY

Creditor ranking 1 

(most junior) 2 3 (most senior) Total 

1. Description of the category of liability or equity instrument with the 

column’s ranking to include, if possible, examples of such liability or 

equity instrument.

2. Total liabilities and equity.

3. Amount of row 2 less excluded liabilities.

4. Total liabilities and equities less non-TLAC amounts (row 2 minus 

row 3).

5. Subset of the amount in row 4 that are potentially eligible as TLAC.

6. Subset of the amount in row 5 with residual maturity greater than or 

equal to one year and less than two years.


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TABLE 1 TO PARAGRAPH (b)(5)(iii)—CREDITOR RANKING FOR RESOLUTION ENTITY—Continued 

Creditor ranking 1 

(most junior) 2 3 (most senior) Total 

7. Subset of the amount in row 5 with residual maturity greater than or 

equal to two years and less than five years.

8. Subset of the amount in row 5 with residual maturity greater than or 

equal to five years and less than ten years.

9. Subset of the amount in row 5 with residual maturity greater than or 

equal to 10 years that do not have perpetual maturities.

10. Subset of the amount in row 5 with perpetual maturities.

■ 15. Revise subpart P to read as 

follows: 

Subpart P—Long-Term Debt 

Requirement, External Total LossAbsorbing Capacity Requirement and 

Buffer, and Restrictions on Corporate 

Practices for U.S. Intermediate Holding 

Companies 

Sec. 

252.160 Applicability and reservation of 

authority. 

252.161 Definitions. 

252.162 Covered IHC long-term debt 

requirement. 

252.163 Internal debt conversion order. 

252.164 Identification as a resolution 

covered IHC or a non-resolution covered 

IHC of a foreign banking organization. 

252.165 Total loss-absorbing capacity 

requirement and buffer for IHCs of global 

systemically important foreign banking 

organizations. 

252.166 Restrictions on corporate practices 

of a covered IHC. 

252.167 Requirement to purchase 

subsidiary long-term debt. 

252.168 Disclosure requirements for 

resolution covered IHCs controlled by 

global systemically important foreign 

banking organizations. 

§ 252.160 Applicability and reservation of 

authority. 

(a) Applicability. This subpart applies 

to a U.S. intermediate holding company 

that either: 

(1) Is controlled by a global 

systemically important foreign banking 

organization; or 

(2) Is not controlled by a global 

systemically important foreign banking 

organization and is a Category II U.S. 

intermediate holding company, 

Category III U.S. intermediate holding 

company, or a Category IV U.S. 

intermediate holding company. 

(b) Timing of requirements. (1) Except 

with respect to § 252.164, a covered IHC 

must comply with the requirements of 

this subpart before: 

(i) In the case of a covered IHC 

controlled by a global systemically 

important foreign banking organization, 

three years after the date on which the 

company becomes a covered IHC 

controlled by a global systemically 

important foreign banking organization; 

and 

(ii) In the case of a covered IHC that 

is not controlled by a global 

systemically important foreign banking 

organization, the later of: 

(A) Three years after the [DATE OF 

FINALIZATION OF PROPOSED RULE]; 

or 

(B) Three years after the date on 

which the company becomes a covered 

IHC. 

(2) A covered IHC must comply with 

the requirements of § 252.164 before: 

(i) In the case of a covered IHC 

controlled by a global systemically 

important foreign banking organization, 

two years after the date on which the 

company becomes a covered IHC; and 

(ii) In the case of a covered IHC that 

is not controlled by a global 

systemically important foreign banking 

organization, six months after the date 

on which the company becomes a 

covered IHC. 

(c) Notwithstanding paragraph (b) of 

this section, a covered IHC that is not 

controlled by a global systemically 

important foreign banking organization 

must have an outstanding eligible longterm debt amount that is no less than: 

(1) 25 percent of the amount required 

under § 252.162 by one year after the 

date on which the covered IHC first 

becomes subject to this subpart; and 

(2) 50 percent of the amount required 

under § 252.162 by two years after the 

date on which the covered IHC first 

becomes subject to this subpart. 

(d) Transition to being controlled by a 

global systemically important foreign 

banking organization. Notwithstanding 

paragraphs (a) and (b) of this section, if 

a covered IHC was subject to this 

subpart the day before the date on 

which the covered IHC becomes 

controlled by a global systemically 

important foreign banking organization: 

(1) During the three-year period set 

forth in paragraph (b)(1)(i) of this 

section, a covered IHC must continue to 

comply with the requirements of this 

subpart that applied to the covered IHC 

the day before the date on which the 

covered IHC became controlled by a 

foreign global systemically important 

banking organization; and 

(2) The last certification provided by 

a covered IHC pursuant to § 252.164 

will be treated as the initial certification 

required by the covered IHC pursuant to 

§ 252.164 the day it becomes controlled 

by a global systemically important 

foreign banking organization. 

(e) Reservation of authority. The 

Board may require a covered IHC to 

maintain an outstanding eligible longterm debt amount or outstanding total 

loss-absorbing capacity amount, if 

applicable, that is greater than or less 

than what is otherwise required under 

this subpart if the Board determines that 

the requirements under this subpart are 

not commensurate with the risk the 

activities of the covered IHC pose to 

public and private stakeholders in the 

event of material distress and failure of 

the covered company. In making a 

determination under this paragraph (e), 

the Board will apply notice and 

response procedures in the same 

manner and to the same extent as the 

notice and response procedures in 

§ 263.202 of this chapter. 

§ 252.161 Definitions. 

For purposes of this subpart: 

Average total consolidated assets 

means the denominator of the leverage 

ratio as described in § 217.10(b)(4) of 

this chapter. 

Covered IHC means a U.S. 

intermediate holding company 

described in § 252.160(a). 

Covered IHC TLAC buffer means, with 

respect to a covered IHC that is 

controlled by a global systemically 

important foreign banking organization, 

the sum of 2.5 percent and any 

applicable countercyclical capital buffer 

under 12 CFR 217.11(b) (expressed as a 

percentage). 

Covered IHC total loss-absorbing 

capacity amount is defined in 

§ 252.165(c). 

Default right (1) Means any: 

(i) Right of a party, whether 

contractual or otherwise (including 

rights incorporated by reference to any 

other contract, agreement or document, 

and rights afforded by statute, civil 


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code, regulation and common law), to 

liquidate, terminate, cancel, rescind, or 

accelerate such agreement or 

transactions thereunder, set off or net 

amounts owing in respect thereto 

(except rights related to same-day 

payment netting), exercise remedies in 

respect of collateral or other credit 

support or property related thereto 

(including the purchase and sale of 

property), demand payment or delivery 

thereunder or in respect thereof (other 

than a right or operation of a contractual 

provision arising solely from a change 

in the value of collateral or margin or a 

change in the amount of an economic 

exposure), suspend, delay, or defer 

payment or performance thereunder, 

modify the obligations of a party 

thereunder or any similar rights; and 

(ii) Right or contractual provision that 

alters the amount of collateral or margin 

that must be provided with respect to an 

exposure thereunder, including by 

altering any initial amount, threshold 

amount, variation margin, minimum 

transfer amount, the margin value of 

collateral or any similar amount, that 

entitles a party to demand the return of 

any collateral or margin transferred by 

it to the other party or a custodian or 

that modifies a transferee’s right to reuse 

collateral or margin (if such right 

previously existed), or any similar 

rights, in each case, other than a right 

or operation of a contractual provision 

arising solely from a change in the value 

of collateral or margin or a change in the 

amount of an economic exposure; and 

(2) Does not include any right under 

a contract that allows a party to 

terminate the contract on demand or at 

its option at a specified time, or from 

time to time, without the need to show 

cause. 

Eligible covered IHC debt security 

with respect to a non-resolution covered 

IHC means an eligible internal debt 

security issued by the non-resolution 

covered IHC, and with respect to a 

resolution covered IHC means an 

eligible internal debt security or an 

eligible external debt security issued by 

the resolution covered IHC. 

Eligible external debt security means: 

(1) New issuances. A debt instrument 

that: 

(i) Is paid in, and issued by the 

covered IHC to, and remains held by, a 

person that does not directly or 

indirectly control the covered IHC and 

is not a wholly owned subsidiary; 

(ii) Is not secured, not guaranteed by 

the covered IHC or a subsidiary of the 

covered IHC, and is not subject to any 

other arrangement that legally or 

economically enhances the seniority of 

the instrument; 

(iii) Has a maturity of greater than or 

equal to one year from the date of 

issuance; 

(iv) Is governed by the laws of the 

United States or any State thereof; 

(v) Does not provide the holder of the 

instrument a contractual right to 

accelerate payment of principal or 

interest on the instrument, except a 

right that is exercisable on one or more 

dates that are specified in the 

instrument or in the event of: 

(A) A receivership, insolvency, 

liquidation, or similar proceeding of the 

covered IHC; or 

(B) A failure of the covered IHC to pay 

principal or interest on the instrument 

when due and payable that continues 

for 30 days or more; 

(vi) Does not have a credit-sensitive 

feature, such as an interest rate that is 

reset periodically based in whole or in 

part on the covered IHC’s credit quality, 

but may have an interest rate that is 

adjusted periodically independent of 

the covered IHC’s credit quality, in 

relation to general market interest rates 

or similar adjustments; 

(vii) Is not a structured note; 

(viii) Does not provide that the 

instrument may be converted into or 

exchanged for equity of the covered 

IHC; and 

(ix) In the case of a debt instrument 

issued on or after [DATE OF 

PUBLICATION OF FINAL RULE IN 

THE FEDERAL REGISTER], is not issued in 

denominations of less than $400,000 

and must not be exchanged for smaller 

denominations by the covered IHC; and 

(2) Legacy long-term debt issued by a 

covered IHC that is controlled by a 

global systemically important foreign 

banking organization. A debt 

instrument issued prior to December 31, 

2016, that: 

(i) Is paid in, and issued by the 

covered IHC to, and remains held by, a 

person that does not directly or 

indirectly control the covered IHC and 

is not a wholly owned subsidiary; 

(ii) Is not secured, not guaranteed by 

the covered IHC or a subsidiary of the 

covered IHC, and not subject to any 

other arrangement that legally or 

economically enhances the seniority of 

the instrument; 

(iii) Has a maturity of greater than or 

equal to one year from the date of 

issuance; 

(iv) Does not have a credit-sensitive 

feature, such as an interest rate that is 

reset periodically based in whole or in 

part on the covered IHC’s credit quality, 

but may have an interest rate that is 

adjusted periodically independent of 

the covered IHC’s credit quality, in 

relation to general market interest rates 

or similar adjustments; 

(v) Is not a structured note; and 

(vi) Does not provide that the 

instrument may be converted into or 

exchanged for equity of the covered 

IHC; and 

(3) Legacy long-term debt issued by a 

covered IHC that is not controlled by a 

global systemically important foreign 

banking organization or a consolidated 

subsidiary insured depository 

institution of the covered IHC. A debt 

instrument issued prior to [DATE OF 

PUBLICATION OF FINAL RULE IN 

THE FEDERAL REGISTER], that: 

(i) Is paid in, and issued by the 

covered IHC or an insured depository 

institution that is a consolidated 

subsidiary of the covered IHC to, and 

remains held by, a person that is not an 

affiliate of the covered IHC; 

(ii) Is not secured, not guaranteed by 

the covered IHC or a subsidiary of the 

covered IHC, and is not subject to any 

other arrangement that legally or 

economically enhances the seniority of 

the instrument; 

(iii) Has a maturity of greater than or 

equal to one year from the date of 

issuance; 

(iv) Is governed by the laws of the 

United States or any State thereof; 

(v) Does not have a credit-sensitive 

feature, such as an interest rate that is 

reset periodically based in whole or in 

part on the covered IHC’s or insured 

depository institution’s credit quality, 

but may have an interest rate that is 

adjusted periodically independent of 

the covered IHC’s or insured depository 

institution’s credit quality, in relation to 

general market interest rates or similar 

adjustments; 

(vi) Is not a structured note; and 

(vii) Does not provide that the 

instrument may be converted into or 

exchanged for equity of the covered IHC 

or an insured depository institution that 

is a consolidated subsidiary of the 

covered IHC. 

Eligible internal debt security means a 

debt instrument that: 

(i) Is paid in, and issued by the 

covered IHC; 

(ii) Is not secured, not guaranteed by 

the covered IHC or a subsidiary of the 

covered IHC, and is not subject to any 

other arrangement that legally or 

economically enhances the seniority of 

the instrument; 

(iii) Has a maturity of greater than or 

equal to one year from the date of 

issuance; 

(iv) Is governed by the laws of the 

United States or any State thereof; 

(v) Does not provide the holder of the 

instrument a contractual right to 

accelerate payment of principal or 

interest on the instrument, except a 

right that is exercisable on one or more 


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dates that are specified in the 

instrument or in the event of: 

(A) A receivership, insolvency, 

liquidation, or similar proceeding of the 

covered IHC; or 

(B) A failure of the covered IHC to pay 

principal or interest on the instrument 

when due and payable that continues 

for 30 days or more; 

(vi) Is not a structured note; 

(vii) Is issued to and remains held by 

a company that is incorporated or 

organized outside of the United States, 

and directly or indirectly controls the 

covered IHC or is a wholly owned 

subsidiary; and 

(viii) Has a contractual provision that 

is approved by the Board that provides 

for the immediate conversion or 

exchange of the instrument into 

common equity tier 1 of the covered IHC 

upon issuance by the Board of an 

internal debt conversion order. 

Internal debt conversion order means 

an order by the Board to immediately 

convert to, or exchange for, common 

equity tier 1 capital an amount of 

eligible internal debt securities of the 

covered IHC specified by the Board in 

its discretion, as described in § 252.163. 

Non-resolution covered IHC means a 

covered IHC identified as or determined 

to be a non-resolution covered IHC 

pursuant to § 252.164. 

Outstanding eligible covered IHC 

long-term debt amount is defined in 

§ 252.162(b). 

Person has the same meaning as in 

§ 225.2(l) of this chapter. 

Qualified financial contract has the 

same meaning as in section 210(c)(8)(D) 

of Title II of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

(12 U.S.C. 5390(c)(8)(D)). 

Resolution covered IHC means a 

covered IHC identified as or determined 

to be a resolution covered IHC pursuant 

to § 252.164. 

Structured note— 

(1) Means a debt instrument that: 

(i) Has a principal amount, 

redemption amount, or stated maturity 

that is subject to reduction based on the 

performance of any asset, entity, index, 

or embedded derivative or similar 

embedded feature; 

(ii) Has an embedded derivative or 

other similar embedded feature that is 

linked to one or more equity securities, 

commodities, assets, or entities; 

(iii) Does not specify a minimum 

principal amount that becomes due and 

payable upon acceleration or early 

termination; or 

(iv) Is not classified as debt under 

GAAP. 

(2) Notwithstanding paragraph (1) of 

this definition, an instrument is not a 

structured note solely because it is one 

or both of the following: 

(i) A non-dollar-denominated 

instrument, or 

(ii) An instrument whose interest 

payments are based on an interest rate 

index. 

Wholly owned subsidiary means an 

entity, all of the outstanding ownership 

interests of which are owned directly or 

indirectly by a global systemically 

important foreign banking organization 

that directly or indirectly controls a 

covered IHC, except that up to 0.5 

percent of the entity’s outstanding 

ownership interests may be held by a 

third party if the ownership interest is 

acquired or retained by the third party 

for the purpose of establishing corporate 

separateness or addressing bankruptcy, 

insolvency, or similar concerns. 

§ 252.162 Covered IHC long-term debt 

requirement. 

(a) Covered IHC long-term debt 

requirement. Except as provided under 

paragraph (c) of this section, a covered 

IHC must have an outstanding eligible 

covered IHC long-term debt amount that 

is no less than the amount equal to the 

greatest of: 

(1) Six percent of the covered IHC’s 

total risk-weighted assets; 

(2) If the covered IHC is required to 

maintain a minimum supplementary 

leverage ratio, 2.5 percent of the covered 

IHC’s total leverage exposure; and 

(3) 3.5 percent of the covered IHC’s 

average total consolidated assets. 

(b) Outstanding eligible covered IHC 

long-term debt amount. 

(1) A covered IHC’s outstanding 

eligible covered IHC long-term debt 

amount is the sum of: 

(i) One hundred (100) percent of the 

amount due to be paid of unpaid 

principal of the outstanding eligible 

covered IHC debt securities issued by 

the covered IHC in greater than or equal 

to two years; and 

(ii) Fifty (50) percent of the amount 

due to be paid of unpaid principal of the 

outstanding eligible covered IHC debt 

securities issued by the covered IHC in 

greater than or equal to one year and 

less than two years; 

(iii) Zero (0) percent of the amount 

due to be paid of unpaid principal of the 

outstanding eligible covered IHC debt 

securities issued by the covered IHC in 

less than one year. 

(2) For purposes of paragraph (b)(1) of 

this section, the date on which principal 

is due to be paid on an outstanding 

eligible covered IHC debt security is 

calculated from the earlier of: 

(i) The date on which payment of 

principal is required under the terms 

governing the instrument, without 

respect to any right of the holder to 

accelerate payment of principal; and 

(ii) The date the holder of the 

instrument first has the contractual right 

to request or require payment of the 

amount of principal, provided that, with 

respect to a right that is exercisable on 

one or more dates that are specified in 

the instrument only on the occurrence 

of an event (other than an event of a 

receivership, insolvency, liquidation, or 

similar proceeding of the covered IHC, 

or a failure of the covered IHC to pay 

principal or interest on the instrument 

when due), the date for the outstanding 

eligible covered IHC debt security under 

this paragraph (b)(2)(ii) will be 

calculated as if the event has occurred. 

(3) After notice and response 

proceedings consistent with 12 CFR part 

263, subpart E, the Board may order a 

covered IHC to exclude from its 

outstanding eligible covered IHC longterm debt amount any debt security 

with one or more features that would 

significantly impair the ability of such 

debt security to take losses. 

(c) Redemption and repurchase. 

Without the prior approval of the Board, 

a covered IHC may not redeem or 

repurchase any outstanding eligible 

covered IHC debt security if, 

immediately after the redemption or 

repurchase, the covered IHC would not 

have an outstanding eligible covered 

IHC long-term debt amount that is 

sufficient to meet its covered IHC longterm debt requirement under paragraph 

(a) of this section or, if applicable, its 

total loss-absorbing capacity 

requirement under § 252.165(a) or (b). 

§ 252.163 Internal debt conversion order. 

(a) The Board may issue an internal 

debt conversion order if: 

(1) The Board has determined that the 

covered IHC is in default or danger of 

default; and 

(2) Any of the following 

circumstances apply: 

(i) A foreign banking organization that 

directly or indirectly controls the 

covered IHC or any subsidiary of the 

top-tier foreign banking organization has 

been placed into resolution proceedings 

(including the application of statutory 

resolution powers) in its home country; 

(ii) The home country supervisor of 

the top-tier foreign banking organization 

has consented or not promptly objected 

after notification by the Board to the 

conversion or exchange of the eligible 

internal debt securities of the covered 

IHC; or 

(iii) The Board has made a written 

recommendation to the Secretary of the 

Treasury pursuant to 12 U.S.C. 5383(a) 

regarding the covered IHC. 

(b) For purposes of paragraph (a) of 

this section, the Board will consider: 


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(1) A covered IHC in default or danger 

of default if 

(i) A case has been, or likely will 

promptly be, commenced with respect 

to the covered IHC under the 

Bankruptcy Code (11 U.S.C. 101 et seq.); 

(ii) The covered IHC has incurred, or 

is likely to incur, losses that will deplete 

all or substantially all of its capital, and 

there is no reasonable prospect for the 

covered IHC to avoid such depletion; 

(iii) The assets of the covered IHC are, 

or are likely to be, less than its 

obligations to creditors and others; or 

(iv) The covered IHC is, or is likely to 

be, unable to pay its obligations (other 

than those subject to a bona fide 

dispute) in the normal course of 

business; and 

(2) An objection by the home country 

supervisor to the conversion or 

exchange of the eligible internal debt 

securities to be prompt if the Board 

receives the objection no later than 24 

hours after the Board requests such 

consent or non-objection from the home 

country supervisor. 

§ 252.164 Identification as a resolution 

covered IHC or a non-resolution covered 

IHC. 

(a) Initial certification. On the first 

business day a covered IHC is required 

to comply with this section pursuant to 

§ 252.160, the top-tier foreign banking 

organization of a covered IHC must 

certify to the Board whether the planned 

resolution strategy of the top-tier foreign 

banking organization involves the 

covered IHC or the subsidiaries of the 

covered IHC entering resolution, 

receivership, insolvency, or similar 

proceedings in the United States. 

(b) Certification update. The top-tier 

foreign banking organization of a 

covered IHC must provide an updated 

certification to the Board upon a change 

in the resolution strategy described in 

the certification provided pursuant to 

paragraph (a) of this section. 

(c) Identification of a resolution 

covered IHC. A covered IHC is a 

resolution covered IHC if the most 

recent certification provided pursuant to 

paragraphs (a) and (b) of this section 

indicates that the top-tier foreign 

banking organization’s planned 

resolution strategy involves the covered 

IHC or the subsidiaries of the covered 

IHC entering resolution, receivership, 

insolvency, or similar proceedings in 

the United States. 

(d) Identification of a non-resolution 

covered IHC. A covered IHC is a nonresolution covered IHC if the most 

recent certification provided pursuant to 

paragraphs (a) and (b) of this section 

indicates that the top-tier foreign 

banking organization’s planned 

resolution strategy involves neither the 

covered IHC nor the subsidiaries of the 

covered IHC entering resolution, 

receivership, insolvency, or similar 

proceedings in the United States. 

(e) Board determination. The Board 

may determine in its discretion that a 

non-resolution covered IHC identified 

pursuant to paragraph (d) of this section 

is a resolution covered IHC, or that a 

resolution covered IHC identified 

pursuant to paragraph (c) of this section 

is a non-resolution covered IHC. 

(f) Transition. (1) A covered IHC 

identified as a resolution covered IHC 

pursuant to paragraph (b) of this section 

or determined by the Board to be a 

resolution covered IHC pursuant to 

paragraph (e) of this section must 

comply with the requirements in this 

subpart applicable to a resolution 

covered IHC within one year after such 

identification or determination, unless 

such time period is extended by the 

Board in its discretion. 

(2) A covered IHC identified as a nonresolution covered IHC pursuant to 

paragraph (b) of this section or 

determined by the Board to be a nonresolution covered IHC pursuant to 

paragraph (e) of this section must 

comply with the requirements in this 

subpart applicable to a non-resolution 

covered IHC one year after such 

identification or determination, unless 

such time period is extended by the 

Board in its discretion. 

§ 252.165 Total loss-absorbing capacity 

requirement and buffer for covered IHCs of 

global systemically important foreign 

banking organizations. 

(a) Total loss-absorbing capacity 

requirement for a resolution covered 

IHC of a global systemically important 

foreign banking organization. A 

resolution covered IHC of a global 

systemically important foreign banking 

organization must have an outstanding 

covered IHC total loss-absorbing 

capacity amount that is no less than the 

amount equal to the greatest of: 

(1) 18 percent of the resolution 

covered IHC’s total risk-weighted assets; 

(2) If the Board requires the resolution 

covered IHC to maintain a minimum 

supplementary leverage ratio, 6.75 

percent of the resolution covered IHC’s 

total leverage exposure; and 

(3) Nine (9) percent of the resolution 

covered IHC’s average total consolidated 

assets. 

(b) Total loss-absorbing capacity 

requirement for a non-resolution 

covered IHC of a global systemically 

important foreign banking organization. 

A non-resolution covered IHC of a 

global systemically important foreign 

banking organization must have an 

outstanding covered IHC total lossabsorbing capacity amount that is no 

less than the amount equal to the 

greatest of: 

(1) 16 percent of the non-resolution 

covered IHC’s total risk-weighted assets; 

(2) If the Board requires the nonresolution covered IHC to maintain a 

minimum supplementary leverage ratio, 

6 percent of the non-resolution covered 

IHC’s total leverage exposure; and 

(3) Eight (8) percent of the nonresolution covered IHC’s average total 

consolidated assets. 

(c) Covered IHC Total loss-absorbing 

capacity amount. (1) A non-resolution 

covered IHC’s covered IHC total lossabsorbing capacity amount is equal to 

the sum of: 

(i) The covered IHC’s common equity 

tier 1 capital (excluding any common 

equity tier 1 minority interest) held by 

a company that is incorporated or 

organized outside of the United States 

and that directly or indirectly controls 

the covered IHC; 

(ii) The covered IHC’s additional tier 

1 capital (excluding any tier 1 minority 

interest) held by a company that is 

incorporated or organized outside of the 

United States and that directly or 

indirectly controls the covered IHC; and 

(iii) The covered IHC’s outstanding 

eligible covered IHC long-term debt 

amount as calculated in § 252.162(b). 

(2) A resolution covered IHC’s 

covered IHC total loss-absorbing 

capacity amount is equal to the sum of: 

(i) The covered IHC’s common equity 

tier 1 capital (excluding any common 

equity tier 1 minority interest); 

(ii) The covered IHC’s additional tier 

1 capital (excluding any tier 1 minority 

interest); and 

(iii) The covered IHC’s outstanding 

eligible covered IHC long-term debt 

amount as calculated in to § 252.162(b). 

(d) Covered IHC of a global 

systemically important foreign banking 

organization TLAC buffer— 

(1) Composition of the covered IHC 

TLAC buffer. The covered IHC TLAC 

buffer is composed solely of common 

equity tier 1 capital. 

(2) Definitions. For purposes of 

paragraph (d) of this section, the 

following definitions apply: 

(i) Eligible retained income. The 

eligible retained income of a covered 

IHC is the greater of: 

(A) The covered IHC’s net income, 

calculated in accordance with the 

instructions to the FR Y–9C, for the four 

calendar quarters preceding the current 

calendar quarter, net of any 

distributions and associated tax effects 

not already reflected in net income; and 

(B) The average of the covered IHC’s 

net income, calculated in accordance 


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with the instructions to the FR Y–9C, for 

the four calendar quarters preceding the 

current calendar quarter. 

(ii) Maximum covered IHC TLAC 

payout ratio. The maximum covered 

IHC TLAC payout ratio is the percentage 

of eligible retained income that a 

covered IHC can pay out in the form of 

distributions and discretionary bonus 

payments during the current calendar 

quarter. The maximum covered IHC 

TLAC payout ratio is based on the 

covered IHC’s covered IHC TLAC buffer 

level, calculated as of the last day of the 

previous calendar quarter, as set forth in 

Table 1 to paragraph (d)(2)(iii) of this 

section. 

(iii) Maximum covered IHC TLAC 

payout amount. A covered IHC’s 

maximum covered IHC TLAC payout 

amount for the current calendar quarter 

is equal to the covered IHC’s eligible 

retained income, multiplied by the 

applicable maximum covered IHC TLAC 

payout ratio, as set forth in Table 1 to 

this paragraph (d)(2)(iii). 

TABLE 1 TO PARAGRAPH (d)(2)(iii)—CALCULATION OF MAXIMUM COVERED IHC TLAC PAYOUT AMOUNT

Covered IHC TLAC buffer level 

Maximum covered IHC 

TLAC payout ratio (as a 

percentage of eligible 

retained income) 

Greater than the covered IHC TLAC buffer .................................................................................................................. No payout ratio limitation 

applies. 

Less than or equal to the covered IHC TLAC buffer, and greater than 75 percent of the covered IHC TLAC buffer 60 percent. 

Less than or equal to 75 percent of the covered IHC TLAC buffer, and greater than 50 percent of the covered IHC 

TLAC buffer.

40 percent. 

Less than or equal to 50 percent of the covered IHC TLAC buffer, and greater 25 percent of the covered IHC 

TLAC buffer.

20 percent. 

Less than or equal to 25 percent of the covered IHC TLAC buffer .............................................................................. 0 percent. 

(3) Calculation of the covered IHC 

TLAC buffer level. (i) A covered IHC’s 

covered IHC TLAC buffer level is equal 

to the covered IHC’s common equity tier 

1 capital ratio (expressed as a 

percentage) minus the greater of zero 

and the following amount: 

(A) 16 percent for a non-resolution 

covered IHC, and 18 percent for a 

resolution covered IHC; minus 

(B) The ratio (expressed as a 

percentage) of the covered IHC’s 

outstanding eligible covered IHC longterm debt amount as calculated in 

§ 252.162(b) to total risk-weighted 

assets; minus 

(C) For a covered IHC that is: 

(1) A non-resolution covered IHC, the 

ratio (expressed as a percentage) of the 

covered IHC’s additional tier 1 capital 

(excluding any tier 1 minority interest) 

held by a company that is incorporated 

or organized outside of the United 

States and that directly or indirectly 

controls the covered IHC to the covered 

IHC’s total risk-weighted assets; 

(2) A resolution covered IHC, the ratio 

(expressed as a percentage of the 

covered IHC’s additional tier 1 capital 

(excluding any tier 1 minority interest) 

to the covered IHC’s total-risk weighted 

assets; and minus 

(ii) Notwithstanding paragraph 

(d)(3)(i) of this section, with respect to 

a resolution covered IHC, if the ratio 

(expressed as a percentage) of the 

resolution covered IHC’s covered IHC 

total loss-absorbing capacity amount, as 

calculated under § 252.165(a), to the 

resolution covered IHC’s risk-weighted 

assets is less than or equal to, 18 

percent, the covered IHC’s covered IHC 

TLAC buffer level is zero. 

(iii) Notwithstanding paragraph 

(d)(3)(i) of this section, with respect to 

a non-resolution covered IHC, if the 

ratio (expressed as a percentage) of the 

non-resolution covered IHC’s covered 

IHC total loss-absorbing capacity 

amount, as calculated under 

§ 252.165(b), to the covered IHC’s riskweighted assets is less than or equal to 

16 percent, the non-resolution covered 

IHC’s covered IHC TLAC buffer level is 

zero. 

(4) Limits on distributions and 

discretionary bonus payments. (i) A 

covered IHC of a global systemically 

important foreign banking organization 

must not make distributions or 

discretionary bonus payments or create 

an obligation to make such distributions 

or payments during the current calendar 

quarter that, in the aggregate, exceed the 

maximum covered IHC TLAC payout 

amount. 

(ii) A covered IHC of a global 

systemically important foreign banking 

organization with a covered IHC TLAC 

buffer level that is greater than the 

covered IHC TLAC buffer is not subject 

to a maximum covered IHC TLAC 

payout amount. 

(iii) Except as provided in paragraph 

(d)(4)(iv) of this section, a covered IHC 

of a global systemically important 

foreign banking organization must not 

make distributions or discretionary 

bonus payments during the current 

calendar quarter if the covered IHC’s: 

(A) Eligible retained income is 

negative; and 

(B) Covered IHC TLAC buffer level 

was less than the covered IHC TLAC 

buffer as of the end of the previous 

calendar quarter. 

(iv) Notwithstanding the limitations 

in paragraphs (d)(4)(i) through (iii) of 

this section, the Board may permit a 

covered IHC of a global systemically 

important foreign banking organization 

to make a distribution or discretionary 

bonus payment upon a request of the 

covered IHC, if the Board determines 

that the distribution or discretionary 

bonus payment would not be contrary to 

the purposes of this section, or to the 

safety and soundness of the covered 

IHC. In making such a determination, 

the Board will consider the nature and 

extent of the request and the particular 

circumstances giving rise to the request. 

(v) A covered IHC of a global 

systemically important foreign banking 

organization is subject to the lowest of 

the maximum payout amounts as 

determined under § 217.11(a)(2) of this 

chapter and the maximum covered IHC 

TLAC payout amount as determined 

under this paragraph (d). 

(vi) Additional limitations on 

distributions may apply to a covered 

IHC of a global systemically important 

foreign banking organization under 

§§ 225.8 and 263.202 of this chapter. 

§ 252.166 Restrictions on corporate 

practices of a covered IHC. 

(a) Prohibited corporate practices. A 

covered IHC must not directly: 

(1) Issue any debt instrument with an 

original maturity of less than one year, 

including short term deposits and 

demand deposits, to any person, unless 

the person is an affiliate of the covered 

IHC; 

(2) Issue any instrument, or enter into 

any related contract, with respect to 

which the holder of the instrument has 


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a contractual right to offset debt owed 

by the holder or its affiliates to the 

covered IHC or a subsidiary of the 

covered IHC against the amount, or a 

portion of the amount, owed by the 

covered IHC under the instrument; 

(3) Enter into a qualified financial 

contract that is not a credit 

enhancement with a person that is not 

an affiliate of the covered IHC; 

(4) Enter into an agreement in which 

the covered IHC guarantees a liability of 

an affiliate of the covered IHC if such 

liability permits the exercise of a default 

right that is related, directly or 

indirectly, to the covered IHC becoming 

subject to a receivership, insolvency, 

liquidation, resolution, or similar 

proceeding other than a receivership 

proceeding under Title II of the DoddFrank Wall Street Reform and Consumer 

Protection Act (12 U.S.C. 5381 through 

5394) unless the liability is subject to 

requirements of the Board restricting 

such default rights or subject to any 

similar requirements of another U.S. 

Federal banking agency; or 

(5) Enter into, or otherwise benefit 

from, any agreement that provides for its 

liabilities to be guaranteed by any of its 

subsidiaries. 

(b) Limit on unrelated liabilities. (1) 

The aggregate amount, on an 

unconsolidated basis, of unrelated 

liabilities of a covered IHC must not 

exceed: 

(i) In the case of a covered IHC 

controlled by a global systemically 

important foreign banking organization, 

5 percent of the covered IHC’s total lossabsorbing capacity amount, as 

calculated under § 252.165(c); and 

(ii) In the case of a covered IHC that 

is not controlled by a global 

systemically important foreign banking 

organization, 5 percent of the covered 

IHC’s: 

(A) Common equity tier 1 capital 

(excluding any common equity tier 1 

minority interest); 

(B) Additional tier 1 capital 

(excluding any tier 1 minority interest); 

and 

(C) Outstanding eligible long-term 

debt amount as calculated pursuant to 

§ 252.162(b). 

(2) For purposes of paragraph (b)(1) of 

this section, an unrelated liability 

includes: 

(i) With respect to a non-resolution 

covered IHC, any non-contingent 

liability of the non-resolution covered 

IHC owed to a person that is not an 

affiliate of the non-resolution covered 

IHC other than those liabilities specified 

in paragraph (b)(3) of this section, and 

(ii) With respect to a resolution 

covered IHC, any non-contingent 

liability of the resolution covered IHC 

owed to a person that is not a subsidiary 

of the resolution covered IHC other than 

those liabilities specified in paragraph 

(b)(3) of this section. 

(3)(i) The instruments included in the 

covered IHC’s common equity tier 1 

capital (excluding any common equity 

tier 1 minority interest), the covered 

IHC’s additional tier 1 capital 

(excluding any common equity tier 1 

minority interest), and the covered 

IHC’s outstanding eligible external LTD 

amount as calculated under 

§ 252.162(a); 

(ii) Any dividend or other liability 

arising from the instruments described 

in paragraph (b)(3)(i) of this section; 

(iii) An eligible covered IHC debt 

security that does not provide the 

holder of the instrument with a 

currently exercisable right to require 

immediate payment of the total or 

remaining principal amount; and 

(iv) A secured liability, to the extent 

that it is secured, or a liability that 

otherwise represents a claim that would 

be senior to eligible covered IHC debt 

securities in Title II of the Dodd-Frank 

Wall Street Reform and Consumer 

Protection Act (12 U.S.C. 5390(b)) and 

the Bankruptcy Code (11 U.S.C. 101 et 

seq.). 

(c) Exemption from limit. A covered 

IHC is not subject to paragraph (b) of 

this section if all of the eligible covered 

IHC debt securities issued by the 

covered IHC would represent the most 

subordinated debt claim in a 

receivership, insolvency, liquidation, or 

similar proceeding of the covered IHC. 

§ 252.167 Requirement to purchase 

subsidiary long-term debt. 

Whenever necessary for an insured 

depository institution that is a 

consolidated subsidiary of a covered 

IHC to satisfy the minimum long-term 

debt requirement set forth in § 216.3(a) 

of this chapter, or § 54.3(a) or § 374.3(a) 

of this title, if applicable, the covered 

IHC or any subsidiary of the covered 

IHC of which the insured depository 

institution is a consolidated subsidiary 

must purchase eligible internal debt 

securities, as defined in § 216.2 of this 

chapter, or § 54.2 or § 374.2 of this title, 

if applicable, from the insured 

depository institution in the amount 

necessary to satisfy such requirement. 

§ 252.168 Disclosure requirements for 

resolution covered IHCs controlled by 

global systemically important foreign 

banking organizations. 

(a) A resolution covered IHC that is 

controlled by a global systemically 

important foreign banking organization 

that has any outstanding eligible 

external debt securities must publicly 

disclose a description of the financial 

consequences to unsecured debtholders 

of the resolution covered IHC entering 

into a resolution proceeding in which 

the resolution covered IHC is the only 

entity in the United States that would be 

subject to the resolution proceeding. 

(b) A resolution covered IHC must 

provide the disclosure required by 

paragraph (a) of this section: 

(1) In the offering documents for all of 

its eligible external debt securities 

issued after the covered IHC becomes 

controlled by a global systemically 

important foreign banking organization; 

and 

(2) Either: 

(i) On the resolution covered IHC’s 

website; or 

(ii) In more than one public financial 

report or other public regulatory reports, 

provided that the resolution covered 

IHC publicly provides a summary table 

specifically indicating the location(s) of 

this disclosure. 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

12 CFR Chapter III 

Authority and Issuance 

For the reasons set forth in the 

common preamble, the Federal Deposit 

Insurance Corporation proposes to 

amend chapter III, subchapter b of title 

12, Code of Federal Regulations as 

follows: 

PART 324—CAPITAL ADEQUACY OF 

FDIC-SUPERVISED INSTITUTIONS 

■ 16. The authority citation for part 324 

continues to read as follows: 

Authority: 12 U.S.C. 1815(a), 1815(b), 

1816, 1818(a), 1818(b), 1818(c), 1818(t), 

1819(Tenth), 1828(c), 1828(d), 1828(i), 

1828(n), 1828(o), 1831o, 1835, 3907, 3909, 

4808; 5371; 5412; Pub. L. 102–233, 105 Stat. 

1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. 

L. 102–242, 105 Stat. 2236, 2355, as amended 

by Pub. L. 103–325, 108 Stat. 2160, 2233 (12 

U.S.C. 1828 note); Pub. L. 102–242, 105 Stat. 

2236, 2386, as amended by Pub. L. 102–550, 

106 Stat. 3672, 4089 (12 U.S.C. 1828 note); 

Pub. L. 111–203, 124 Stat. 1376, 1887 (15 

U.S.C. 78o–7 note), Pub. L. 115–174; section 

4014 § 201, Pub. L. 116–136, 134 Stat. 281 

(15 U.S.C. 9052). 

■ 17. In § 324.2, revise the definition of 

‘‘Covered debt instrument’’ to read as 

follows: 

§ 324.2 Definitions. 

* * * * * 

Covered debt instrument means an 

unsecured debt instrument that is: 

(1) Both: 

(i) Issued by a depository institution 

holding company that is subject to a 

long-term debt requirement set forth in 


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§ 238.182 or § 252.62 of this title, as 

applicable, or a subsidiary of such 

depository institution holding company; 

and 

(ii) An eligible debt security, as 

defined in § 238.181 or § 252.61 of this 

title, as applicable, or that is pari passu 

or subordinated to any eligible debt 

security issued by the depository 

institution holding company; or 

(2) Both: 

(i) Issued by a U.S. intermediate 

holding company or insured depository 

institution that is subject to a long-term 

debt requirement set forth in § 374.3 of 

this chapter or § 54.3, § 216.3, or 

§ 252.162 of this title, as applicable, or 

a subsidiary of such U.S. intermediate 

holding company or insured depository 

institution; and 

(ii) An eligible external debt security, 

as defined in § 374.2 of this chapter or 

§ 54.2, § 216.2, or § 252.161 of this title, 

as applicable, or that is pari passu or 

subordinated to any eligible external 

debt security issued by the U.S. 

intermediate holding company or 

insured depository institution; or 

(3) Issued by a global systemically 

important banking organization, as 

defined in § 252.2 of this title other than 

a global systemically important BHC; or 

issued by a subsidiary of a global 

systemically important banking 

organization that is not a global 

systemically important BHC, other than 

a U.S. intermediate holding company 

subject to a long-term debt requirement 

set forth in § 252.162 of this title; and 

where, 

(i) The instrument is eligible for use 

to comply with an applicable law or 

regulation requiring the issuance of a 

minimum amount of instruments to 

absorb losses or recapitalize the issuer 

or any of its subsidiaries in connection 

with a resolution, receivership, 

insolvency, or similar proceeding of the 

issuer or any of its subsidiaries; or 

(ii) The instrument is pari passu or 

subordinated to any instrument 

described in paragraph (3)(i) of this 

definition; for purposes of this 

paragraph (3)(ii) of this definition, if the 

issuer may be subject to a special 

resolution regime, in its jurisdiction of 

incorporation or organization, that 

addresses the failure or potential failure 

of a financial company and any 

instrument described in paragraph (3)(i) 

of this definition is eligible under that 

special resolution regime to be written 

down or converted into equity or any 

other capital instrument, then an 

instrument is pari passu or subordinated 

to any instrument described in 

paragraph (3)(i) of this definition if that 

instrument is eligible under that special 

resolution regime to be written down or 

converted into equity or any other 

capital instrument ahead of or 

proportionally with any instrument 

described in paragraph (3)(i) of this 

definition; and 

(4) Provided that, for purposes of this 

definition, covered debt instrument does 

not include a debt instrument that 

qualifies as tier 2 capital pursuant to 

§ 324.20(d) or that is otherwise treated 

as regulatory capital by the primary 

supervisor of the issuer. 

* * * * * 

■ 18. In § 324.22, revise paragraphs 

(c)(1) and (h)(3)(iii) introductory 

paragraph to read as follows: 

§ 324.22 Regulatory capital adjustments 

and deductions. 

* * * * * 

(c) * * * 

(1) Investment in the FDIC-supervised 

institution’s own capital or covered debt 

instruments. An FDIC-supervised 

institution must deduct an investment 

in its own capital instruments, and an 

advanced approaches FDIC-supervised 

institution also must deduct an 

investment in its own covered debt 

instruments, as follows: 

(i) An FDIC-supervised institution 

must deduct an investment in the FDICsupervised institution’s own common 

stock instruments from its common 

equity tier 1 capital elements to the 

extent such instruments are not 

excluded from regulatory capital under 

§ 324.20(b)(1); 

(ii) An FDIC-supervised institution 

must deduct an investment in the FDICsupervised institution’s own additional 

tier 1 capital instruments from its 

additional tier 1 capital elements; 

(iii) An FDIC-supervised institution 

must deduct an investment in the FDICsupervised institution’s own tier 2 

capital instruments from its tier 2 

capital elements; and 

(iv) An advanced approaches FDICsupervised institution must deduct an 

investment in the institution’s own 

covered debt instruments from its tier 2 

capital elements, as applicable. If the 

advanced approaches FDIC-supervised 

institution does not have a sufficient 

amount of tier 2 capital to effect this 

deduction, the institution must deduct 

the shortfall amount from the next 

higher (that is, more subordinated) 

component of regulatory capital. 

* * * * * 

(h) * * * 

(3) * * * 

(iii) For an investment in an FDICsupervised institution’s own capital 

instrument under paragraph (c)(1) of 

this section, an investment in the capital 

of an unconsolidated financial 

institution under paragraphs (c)(4) 

through (6) and (d) of this section (as 

applicable), and an investment in a 

covered debt instrument under 

paragraphs (c)(1), (5), and (6) of this 

section: 

* * * * * 

PART 374—LONG-TERM DEBT 

REQUIREMENTS 

■ 19. Add part 374 as set forth at the 

end of the common preamble. 

■ 20. Amend part 374 by: 

■ a. Removing ‘‘[AGENCY]’’ and adding 

‘‘FDIC’’ in its place wherever it appears. 

■ b. Removing ‘‘[AGENCY 

AUTHORITY]’’ and adding ‘‘12 U.S.C. 

1815(a), 1815(b), 1816, 1818(a), 1818(b), 

1818(c), 1818(t), 1819(Tenth), 1828(c), 

1828(d), 1828(i), 1828(n), 1831o, 1835, 

3907, 3909; 5371; 5412; Pub. L. 102– 

233, 105 Stat. 1761, 1789, 1790 (12 

U.S.C. 1831n note); Pub. L. 102–242, 

105 Stat. 2236, 2355, as amended by 

Pub. L. 103–325, 108 Stat. 2160, 2233 

(12 U.S.C. 1828 note); Pub. L. 102–242, 

105 Stat. 2236, 2386, as amended by 

Pub. L. 102–550, 106 Stat. 3672, 4089 

(12 U.S.C. 1828 note).’’ 

■ c. Removing ‘‘[AGENCY TOTAL 

LEVERAGE EXPOSURE]’’ and adding 

‘‘§ 324.10(c)(2) of this chapter’’ in its 

place wherever it appears. 

■ d. Removing ‘‘[BANK]’’ and adding 

‘‘FDIC-supervised institution’’ in its 

place wherever it appears. 

■ e. Removing ‘‘A FDIC-supervised 

institution’’ and adding ‘‘An FDICsupervised institution’’ in its place 

wherever it appears. 

■ f. Removing ‘‘a FDIC-supervised 

institution’’ and adding ‘‘an FDICsupervised institution’’ in its place 

wherever it appears. 

■ g. Removing ‘‘[BANK’s]’’ and adding 

‘‘FDIC-supervised institution’s’’ in its 

place wherever it appears. 

■ h. Removing ‘‘[BANKS]’’ and adding 

‘‘FDIC-supervised institutions’’ in its 

place wherever it appears. 

■ i. Removing ‘‘[AGENCY NOTICE 

PROVISION]’’ and adding ‘‘§ 324.5 of 

this chapter’’ in its place wherever it 

appears. 

■ j. Removing ‘‘[AGENCY LEVERAGE 

RATIO]’’ and adding ‘‘§ 324.10(b)(4) of 

this chapter’’ in its place wherever it 

appears. 

■ k. Removing ‘‘[AGENCY 

SUPPLEMENTARY LEVERAGE 

RATIO]’’ and adding ‘‘§ 324.10(c)(1) of 

this chapter’’ in its place wherever it 

appears. 

■ l. Removing ‘‘[OTHER AGENCIES’ 

LONG–TERM DEBT REQUIREMENT]’’ 

and adding ‘‘part 54 of this title, or part 

216 of this title’’ in its place wherever 

it appears. 

■ m. Removing ‘‘[OTHER AGENCIES’ 

SCOPING PARAGRAPHS]’’ and adding 


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‘‘§§ 54.1(a)(1) through (2) of this title, or 

§§ 216.1(a)(1) through (2) of this title’’ in 

its place wherever it appears. 

■ n. Removing ‘‘[AGENCY AA 

NOTIFICATION PROVISION]’’ and 

adding ‘‘§ 324.121(d) of this chapter’’ in 

its place wherever it appears. 

■ o. Removing ‘‘[AGENCY CAPITAL 

RULE DEFINITIONS]’’ and adding 

‘‘§ 324.2 of this chapter’’ in its place 

wherever it appears. 

■ 21. Amend § 374.2 by adding 

definitions for ‘‘FDIC-supervised 

institution’’, ‘‘State nonmember bank’’, 

and ‘‘State savings association’’ in 

alphabetical order to read as follows: 

§ 374.2 Definitions. 

* * * * * 

FDIC-supervised institution means 

any state nonmember bank or state 

savings association. 

* * * * * 

State nonmember bank means a State 

bank that is not a member of the Federal 

Reserve System as defined in section 

3(e)(2) of the Federal Deposit Insurance 

Act (12 U.S.C. 1813(e)(2)), the deposits 

of which are insured by the FDIC. 

* * * * * 

State savings association means a 

State savings association as defined in 

section 3(b)(3) of the Federal Deposit 

Insurance Act (12 U.S.C. 1813(b)(3)), the 

deposits of which are insured by the 

FDIC. It includes a building and loan, 

savings and loan, or homestead 

association, or a cooperative bank (other 

than a cooperative bank which is a state 

bank as defined in section 3(a)(2) of the 

Federal Deposit Insurance Act) 

organized and operating according to 

the laws of the State in which it is 

chartered or organized, or a corporation 

(other than a bank as defined in section 

3(a)(1) of the Federal Deposit Insurance 

Act) that the Board of Directors of the 

FDIC determine to be operating 

substantially in the same manner as a 

state savings association. 

* * * * * 

Michael J. Hsu, 

Acting Comptroller of the Currency. 

By order of the Board of Governors of the 

Federal Reserve System. 

Ann E. Misback, 

Secretary of the Board. 

Federal Deposit Insurance Corporation. 

By order of the Board of Directors. 

Dated at Washington, DC, on August 29, 

2023. 

James P. Sheesley, 

Assistant Executive Secretary. 

[FR Doc. 2023–19265 Filed 9–18–23; 8:45 am] 

BILLING CODE 4810–33– 6210–01–6714–01–P 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

12 CFR Part 360 

RIN 3064–AF90 

Resolution Plans Required for Insured 

Depository Institutions With $100 

Billion or More in Total Assets; 

Informational Filings Required for 

Insured Depository Institutions With at 

Least $50 Billion But Less Than $100 

Billion in Total Assets 

AGENCY: Federal Deposit Insurance 

Corporation (FDIC). 

ACTION: Notice of proposed rulemaking 

and request for comment. 

SUMMARY: The FDIC is seeking comment 

on a proposal to revise its current rule 

that requires the submission of 

resolution plans by insured depository 

institutions (IDIs) with $50 billion or 

more in total assets. The proposal would 

modify the current rule by revising the 

requirements regarding the content and 

timing of resolution submissions as well 

as interim supplements to those 

submissions provided to the FDIC by 

IDIs with $50 billion or more in total 

assets in order to support the FDIC’s 

resolution readiness in the event of 

material distress and failure of these 

large IDIs. IDIs with $100 billion or 

more in total assets will submit full 

resolution plans, while IDIs with total 

assets between $50 and $100 billion will 

submit informational filings. The 

proposed rule would also enhance how 

the credibility of resolution submissions 

will be assessed, expand expectations 

regarding engagement and capabilities 

testing, and explain expectations 

regarding the FDIC’s review and 

enforcement of IDIs’ compliance with 

the rule. 

DATES: Comments must be received by 

November 30, 2023. 

ADDRESSES: You may submit comments 

on the notice of proposed rulemaking, 

identified by RIN 3064–AF90, by any of 

the following methods: 

• Agency Website: https://

www.fdic.gov/resources/regulations/ 

federal-register-publications/. Follow 

instructions for submitting comments on 

the FDIC’s website. 

• Email: comments@fdic.gov. Include 

‘‘RIN 3064–AF90’’ in the subject line of 

the message. 

• Mail: James P. Sheesley, Assistant 

Executive Secretary, Attention: 

Comments/Legal OES (RIN 3064–AF90), 

Federal Deposit Insurance Corporation, 

550 17th Street NW, Washington, DC 

20429. 

• Hand Delivery/Courier: Comments 

may be hand delivered to the guard 

station at the rear of the 550 17th Street 

NW building (located on F Street NW) 

on business days between 7:00 a.m. and 

5:00 p.m. 

Public Inspection: All comments 

received, including any personal 

information provided, will be posted 

without change to https://www.fdic.gov/ 

resources/regulations/federal-registerpublications/. Commenters should 

submit only information that the 

commenter wishes to make available 

publicly. The FDIC may review, redact, 

or refrain from posting all or any portion 

of any comment that it may deem to be 

inappropriate for publication, such as 

irrelevant or obscene material. The FDIC 

may post only a single representative 

example of identical or substantially 

identical comments, and in such cases 

will generally identify the number of 

identical or substantially identical 

comments represented by the posted 

example. All comments that have been 

redacted, as well as those that have not 

been posted, that contain comments on 

the merits of this document will be 

retained in the public comment file and 

will be considered as required under all 

applicable laws. All comments may be 

accessible under the Freedom of 

Information Act. 

FOR FURTHER INFORMATION CONTACT: 

Elizabeth Falloon, Senior Advisor, 

Division of Complex Institution 

Supervision and Resolution, 202–898– 

6626, efalloon@fdic.gov; Kent R. Bergey, 

Associate Director, Division of Complex 

Institution Supervision and Resolution, 

917–320–2834, kebergey@fdic.gov; 

Aaron Wishart, Chief, Policy Analysis, 

Division of Complex Institution 

Supervision and Resolution 202–898– 

6982, awishart@fdic.gov; Audra Cast, 

Deputy Director, Division of Resolutions 

and Receiverships 312–382–7577, 

acast@fdic.gov; Shawn Khani, Deputy 

Director, Division of Resolutions and 

Receiverships 703–254–0843, skhani@

fdic.gov; Varanessa Marshall, Assistant 

Director, Division of Resolution and 

Receiverships 678–916–2233, 

vamarshall@fdic.gov; Celia Van Gorder, 

Senior Counsel, Legal Division 202– 

898–6749, cvangorder@fdic.gov; F. 

Angus Tarpley, III, Counsel, Legal 

Division 202–898–8521, ftarpley@

fdic.gov. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Introduction/Policy Objective 

II. Background 

III. Proposed Rule 

A. Resolution Submissions 

1. Scope 

2. Submission Schedules 

a. Submission Cycle and Additional 

Information Between Submissions 


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