In a joint press release with other regulators, the FDIC on April 2 indicated it plans to focus rules protecting against system failures on large institutions —
“Global systemically important bank holding companies, or GSIBs, are the largest and most complex banking organizations and are required to issue debt with certain features under the Board’s ‘total loss-absorbing capacity,’ or TLAC, rule. That debt would be used to recapitalize the holding company during bankruptcy or resolution if it were to fail.
“To discourage GSIBs and “advanced approaches” banking organizations—generally, firms that have $250 billion or more in total consolidated assets or $10 billion or more in on-balance sheet foreign exposure from purchasing large amounts of TLAC debt, the proposal would require such banking organizations to hold additional capital against substantial holdings of TLAC debt. This would reduce interconnectedness between large banking organizations and, if a GSIB were to fail, reduce the impact on the financial system from that failure.”
It’s taken awhile, but federal regulators seem to be catching up with the work of economists and other scholars who realize the dangers of industry concentration — and the benefits of a healthy community banking sector. See, for example, last year’s important Federal Reserve study on the impact of bank size on system risk.