FDIC proposes new rules for regional banks to better prepare for a potential collapse

U.S. regional banks are in focus today after the FDIC proposed new rules that require them to be better prepared for their potential collapse.

FDIC board member discussed proposed rules on CNBC

For one, the Federal Deposit Insurance Corporation wants banks with assets worth more than $100 billion to issue sufficient long-term debt that could cover potential losses in times of extreme stress.

The regulator will also make midsize lenders outline details of how they’d be dissolved safety and smoothly in case of a failure. On CNBC’s “Squawk Box”, an FDIC board member – Rohit Chopra said today:

Washington Mutual, IndyMac, and Silicon Valley Bank. It’s important we learn from those lessons and prevent these failures and effects they can have on the whole economy.

“IAT” – the iShares U.S. Regional Banks ETF is up more than 1.0% at writing.

Prominent banks which will be affected by the new rules

A few of the notable regional banks that the new regulation will apply on include Citizens Financials, Fifth Third Bancorp, and PNC Financial.

These financial services firms will have three years after the proposed rules are adopted to come in line with the new standard, as per the Federal Deposit Insurance Corporation. Its board member Rohit Chopra also said today:

We can’t be in a situation where main street and small businesses and households become the victims of excessive risk-taking and poor management.

Note that the Signature Bank and Silicon Valley Bank failures earlier these year resulted in a billion-of-dollars worth of hit to the government’s Deposit Insurance Fund.