JPMorgan Chase & Co., the biggest U.S. bank, has $125 billion of debt that would be eligible under a new rule intended to prevent taxpayer bailouts of large financial firms.
The debt, along with capital and reserves for bad loans, is part of the bank’s $350 billion in total loss-absorbing capacity, the New York-based company said Tuesday in an investor presentation. The standard, known as TLAC, requires long-term debt that can be converted to equity in case a bank’s losses wipe out most of its capital, allowing it to continue functioning without a government backstop.
In December, shortly after the Federal Reserve proposed the rule, JPMorgan said the debt requirement wouldn’t be a binding constraint for the firm. The bank’s total loss-absorbing resources amount to more than 150 percent of the entire industry’s pretax losses under a severely adverse economic scenario contemplated by the Fed in its 2015 stress tests, JPMorgan said in Tuesday’s presentation.
Of its $162 billion of senior debt, about $58 billion would be ineligible, leaving a shortfall of about $20 billion to meet a requirement that TLAC-eligible debt be at least 9.5 percent of risk-weighted assets by 2019, the company said. The gap may be covered by refinancing maturing debt and modifying terms of some existing debt, it said.
In comment letters the Fed released Monday, leading industry groups criticized the rule for going too far. Regulators’ demands for loss-absorption far exceed potential worst-case scenario losses, five lobbying organizations said in a letter. Requiring a separate long-term debt minimum also makes no sense because it would prevent firms from fulfilling the rule by using more equity, the groups said.