Hoenig warns reliance on long-term debt could represent systemic vulnerability
FDIC vice-chairman comments on Fed and disagreement over ‘living wills’
Thomas Hoenig, vice-chairman of the Federal Deposit Insurance Corporation (FDIC), has warned against allowing long-term debt to become a substitute for equity on bank balance sheets, saying an overreliance on debt could leave the banking system vulnerable to a systemic crisis. He suggests the ‘living will' process in the US could help find the right balance.
Under the internationally agreed model for resolution, banks must be structured, so losses pass upwards to the bank holding company (BHC)
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