On October 30, 2015, the Federal Reserve Board announced a new proposal to change banking requirements for certain banks. The proposal requires domestic global systemically important banks (GSIBs) and the U.S. operations of foreign GSIBs to meet a new long-term debt requirement, as well as a new “total loss-absorbing capacity,” or TLAC, requirement. Janet Yellen, the Federal Reserve chairwoman, said, “This is an important step toward ending the market perception that any banking firm is ‘too big to fail.”
“Too big to fail” refers to the notion that the government has to bail out the largest banks in economic catastrophes, since allowing them to fail would create a negative domino effect on the remainder of the economy. In the last financial crisis in 2008, the U.S. government dropped their oppositions to bailout soon after the Lehman Brothers collapsed and the global financial system was seriously affected. Such bailouts ultimately impose losses on the taxpayers rather than allocating responsibility for risky banking practices on the organizations themselves. Therefore, the post-crisis regulations, including but not limited to the Dodd-Frank Act, are aimed at making it safer to let a big bank die.