On Friday, October 30, 2015, the Federal Reserve Board (“Board”) reaffirmed its commitment to both the bank holding company model and single point of entry resolution. In a departure from historical views of the purpose and function of bank capital, but building on a proposal by the Financial Stability Board (“FSB”), the Board proposed to require globally systemically important banks (“G-SIBs”) to issue long-term debt for the purposes of capitalizing a bridge institution that would succeed the G-SIB in the event of the G-SIB’s failure. The Board also proposed to limit the liability structure of G-SIBs and to limit other banking institutions’ investments in G-SIBs in order to facilitate the resolution of G-SIBs. Specifically the Board issued a notice of Proposed Rulemaking (“Proposed Rule”) seeking comment on: a proposed requirement for U.S. bank holding companies (“BHCs”), which are G-SIBs, to maintain a minimum amount of loss-absorbing instruments, including capital and a minimum amount of unsecured long-term debt. The intermediate holding companies, or IHCs, of foreign banking organizations (“FBOs”), with $50 billion or more in U.S. non-branch assets would be required to maintain a minimum amount of upstream loss-absorbing instruments, including a minimum amount of unsecured long-term debt. The Proposed Rule also introduces the concept of a “clean holding company” by imposing a number of significant restrictions on the other liabilities that a covered BHC may have outstanding.

This alert is intended to provide a brief overview, which we will supplement with a more detailed analysis in the coming days.