holding companies, ” notice of proposed rulemaking ( docket no. r - 1523 ), federal register, vol. 80 ( november 30 ), pp. 74931 – 32. the gsib has to satisfy both constraints. tlac encompasses both equity capital and eligible long - term debt. see board of governors of the federal reserve system ( 2016 ), “ federal reserve board proposes rule to support u. s. financial stability by enhancing the resolvability of very large and complex financial firms, ” press release, may 3. see board of governors of the federal reserve system and federal deposit insurance corporation ( 2016 ), “ agencies announce determinations and provide feedback on resolution plans of eight systemically important, domestic banking institutions, “ joint press release, april 13. bis central bankers ’ speeches the agencies found that five of the gsibs ’ plans fell short of the dodd - frank act ’ s standard and required those firms to fix the deficiencies in their plans by october of this year or potentially face more stringent prudential requirements. the agencies also identified lesssevere shortcomings in the plans of all eight gsibs, which the gsibs are expected to address in their next round of resolution plan submissions, due in july 2017. the deficiencies and shortcomings identified by the agencies touched on most of the categories i have just listed, especially liquidity, governance mechanisms, operational capabilities, and legal entity rationalization. i want to end by briefly addressing several criticisms that have been made of the dodd - frank act ’ s orderly liquidation authority and the board ’ s tlac proposal. one criticism is that there is no need for the backup orderly liquidation authority because the bankruptcy code provides an adequate framework for the resolution of any financial company. as title ii of the doddfrank act recognizes, however, the bankruptcy code may not be adequate to minimize the systemic impact of the resolution of a systemically important financial firm. the bankruptcy code does not direct the judge to take financial stability into account in making decisions, and it does not provide other important stabilizing features of the orderly liquidation authority, such as government liquidity support and stay - and - transfer treatment for qualified financial contracts. a related line of criticism holds that the orderly liquidation authority enshrines “ too big to fail ” and provides for taxpayer bailouts of systemically important firms through the orderly liquidation fund. however, under the board ’ s proposed tlac rule, a

failed gsib would be recapitalized by its private - sector long - term creditors ( whose debt claims would be converted into equity ), not by the government. the orderly liquidation fund would be used only to provide liquidity support, not to inject capital, and in the unlikely event that the fund does incur losses, the dodd - frank act provides that these losses would be covered by assessments on major financial companies and would not be passed on to taxpayers. i also note that credit rating agencies have recognized public - sector efforts to end the too - big - to - fail phenomenon. the rating agencies no longer assume that the u. s. government will take extraordinary actions to prevent the failure of systemically important u. s. financial firms. finally, one criticism that has been leveled at our tlac proposal is that imposing long - term debt requirements on gsibs will lead those firms to increase their leverage and thereby raise their probability of failure, and that they should instead be required to hold higher levels of equity capital. i agree that equity capital plays a key role in preventing financial firm failures, and we have raised equity capital requirements for banking organizations – especially gsibs – substantially since the crisis. but to protect financial stability, we must reduce not only the probability that a gsib will fail, but also the damage that its failure could do if it were to occur. at the point of failure, a banking firm ’ s equity capital is likely to be zero or negative, so to improve gsib resolvability, our proposal requires gsibs to have a thick tranche of goneconcern loss - absorbing capacity to ensure that resolution authorities will have the necessary raw material to manufacture fresh equity and recapitalize and stabilize the firm. 7 that is the role played by the proposal ’ s long - term debt requirements. and we expect that firms would generally come into compliance with the proposed requirements by replacing existing ineligible liabilities with eligible long - term debt rather than by increasing their leverage. at any rate, even if a firm were to come into compliance in part by increasing the size of its balance sheet, it would remain subject to our robust equity capital requirements and leverage limits, which are designed to ensure a very low probability of failure. finally, the existence of a thick see board of governors ( 2015 ), “ total loss - absorbing capacity, long - term debt, and clean holding company requirements, ” in note 5. under the proposal, a u