At the end of 2018, the Federal Reserve issued its inaugural Financial Stability Report. The report recognizes that the banking system is an important source of financial stability for the economy and largely focuses on the significant increase in bank capital that has taken place over the past decade. Indeed, as depicted in the report and shown below in Figure 1, large bank capital ratios have roughly doubled since 2009.

While this improvement in large bank capital should not go unnoticed, it is also important to recognize other ways in which the resiliency of large banks has improved.  In January, the Federal Reserve’s rule on total loss absorbing capacity, or “TLAC,” became effective.  This rule requires Forum members – and only Forum members – to issue long-term debt to external third parties to further bolster their resiliency.  The long-term debt required under the TLAC rule bolsters the resiliency of Forum members for three important reasons.