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January 18, 2024

The Banking Agencies’ Long-Term Debt Requirements Are Misguided, Fundamentally Flawed, Endanger Retail Investors, and Should Be Withdrawn

WASHINGTON, D.C. – Dennis M. Kelleher, Co-Founder, President and CEO, issued the following statement in connection with the filing of Better Markets’ Comment Letter on long-term debt (LTD) requirements for large bank holding companies to the three banking agencies:

“The banking agencies’ LTD proposal is misguided, fundamentally flawed, endanger retail investors, and should be withdrawn. As proved by the second, third, and fourth largest bank failures in history last year, too-big-to-fail banks still threaten the American people, the financial system, and the economy. Adding yet more bank debt will just make that worse.

“First, and most importantly, the proposal itself implicitly acknowledges that capital requirements are not high enough to prevent large bank failures. That’s why the Agencies’ primary focus should be on strengthening the financial resilience of large banks before they fail so they don’t fail, through strengthening capital requirements and stress testing programs.

“Another key flaw in the LTD proposal is the likelihood of retail investors facing large and possibly unexpected losses in the event of bank failure. That’s because they are the most likely holders of LTD (directly or indirectly through brokerage accounts, mutual funds, and pension funds). Experience from Credit Suisse and other large bank failures in Europe provide undeniable evidence of the problems with a LTD scheme: imposing large losses on debtholders who are retail investors could ignite a political firestorm. That’s because the LTD proposal would result in those investors bailing out failed banks.

“Financial stability could be endangered due to contagion risk resulting both from uncertainty about, and actual losses on, LTD issued by failing banks. The Proposal places unearned faith in the ability of LTD to facilitate a smooth and orderly process in the event of a large bank failure. Market forces on pricing can be unpredictable and will not always behave as expected, especially during periods of market stress. Panic selling, fire sales, and contagion based on incomplete information as happened in 2008 is much more likely.

“Finally, LTD issuance would increase debt-service payments and make large banks more highly leveraged. Increased leverage directly increases the likelihood of potential failure. As we have stated before, there is no substitute for capital and higher capital requirements that would reduce the likelihood of failure in the first place.”

Read our full comment letter here.


Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit

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