Ending Too-Big-to-Fail

Position

• ICBA supports legislative and regulatory measures that would curb or end advantages currently enjoyed by large banks holding more than $100 billion in total assets. ICBA supports increased measures to regulate large too-big-to-fail banks and help mitigate the risk they pose to the financial system and economy. Such measures include: (1) higher capital and supplemental leverage ratio requirements on the largest banks and their holding companies; (2) enhanced liquidity standards; (3) activity restrictions; (4) concentration limits; (5) limitations on the federal safety net; and (6) more effective resolution authority.

• ICBA supports a significant capital surcharge on SIFIs and the imposition of total loss absorbing capacity (TLAC) and long-term debt (LTD) requirements on all banks with assets greater than $100 billion in assets. In addition to providing protection to the FDIC’s Deposit Insurance Fund and U.S. taxpayers from the failures of large banks, TLAC or long-term debt requirements would also allow the FDIC to resolve large banks over an extended period of time and provide community banks a greater opportunity to purchase a large bank’s assets and deposits in receivership.

• ICBA supports the Federal Deposit Insurance Corporation’s (FDIC’s) and the Federal Reserve’s rules on contingent resolution plans which would facilitate rapid and orderly resolutions and enable the FDIC, as receiver, to resolve the institution under the FDI Act. ICBA believes that the submission of resolution plans should be limited to those banking organizations with total consolidated assets of $100 billion or more. ICBA opposes the FDIC proposal to require informational filings for banks with assets of $50 billion or more.

• The same prosecutorial standards and enforcement procedures must apply to community banks and large banks alike.

Background

The continued growth and dominance of large and too-big-to-fail banks has led to an overly concentrated financial system, created unacceptable moral hazard and systemic risk, thwarted the operation of the free market, and harmed consumers and business borrowers.

Additionally, as demonstrated by the collapse of several large banks in 2023, and the subsequent systemic risk determinations that protected the uninsured depositors of these institutions, banks holding more than $100 billion in total assets pose outsized risk to the nation’s financial system.

The greatest ongoing threats to the safety and soundness of the U.S. banking system are the implicit guarantees given to large banks above $100 billion in total assets, as well as the dominance of a small number of large too-big-to-fail megabanks, which have grown even larger since the financial meltdown of 2008.

The 12 largest US banks, just 0.002 percent of all US banks, account for more than half of industry assets, dwarfing the rest of the banking system and posing massive systemic risk. Because these firms are too big to fail, they act with impunity and court risks that no smaller firm would tolerate.

The markets offer them credit at rates that do not reflect their true risk—rates that are subsidized by an implicit taxpayer guarantee. In addition, large or interconnected institutions are too big to manage, too big to prosecute, and their executives are too big to jail.

To address TBTF, we must both reduce the riskiness of megabanks to make it less likely they will fail in the first place and, when an institution is failing, ensure that tools are available to implement an orderly liquidation of the institution without causing a destabilizing systemic impact.