Karen Shaw Petrou, managing partner of Federal Financial Analytics, Inc., today provides the following  comment on the FRB’s new proposal to require total loss absorbing capacity (TLAC) buffers at the  largest U.S. bank holding companies and foreign banks doing business here:

“The FRB’s “final firewall” is also a final frontier, subjecting the largest banks doing business in the U.S. to stringent standards that will prove costly  as interest rates normalize.  Big banks have issued a lot of debt under current rates that, when re-issued to comply with TLAC and meet market demands, will cost considerably more.  As a result, it will be more difficult for these banks to offer competitive loan products.  Smaller banks might  pick up the lending slack, but the new, policy-set framework of the U.S. bank-debt market will surely enhance the role of non-bank lenders and mutual funds.”

TLAC - Buffers At The Largest Bank Holding Companies