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Truist in 'build capital mode' to prepare for heightened large bank regulation


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Truist in 'build capital mode' to prepare for heightened large bank regulation

Truist Financial Corp. is preparing for the possibility of more stringent capital requirements by building capital now.

Regulators have made it clear they plan to enact stricter capital, liquidity and stress testing requirements on the largest US banks following the recent bank failures. Though the rulemaking processes could take years, Truist is preparing for multiple possibilities now, Executive Chairman, President and CEO Bill Rogers said at a recent industry conference.

"We're in a build capital mode," he said. "We're on a flight path and building capital, [but] where that flight path stops, I'm not exactly sure. But we're going to be in a build mode until we have more information, more certainty."

One possibility the company is bracing for is the inclusion of accumulated other comprehensive income (AOCI) in regulatory capital ratios.

"Banks our size will have an AOCI component of some type. I don't know how that will be tailored or when that will come into play," Rogers said. The Wall Street Journal reported on April 21 that the Federal Reserve is considering such a move.

The company is also expecting total loss-absorbing capacity (TLAC) requirements to soon trickle down to regional banks. "TLAC is coming to banks of our size," Rogers said.

Given the outlook for a multiyear rulemaking process and the bank's current regular issuing, Rogers said he does not expect much of an impact from TLAC requirements.

"We cover really the bulk of that sort of from regular way issuing. That will be a little more expensive. We'll carry a little more debt than we would have otherwise. But I see that as an absorption challenge, that's not the high bar that everybody was worried about," he said.

However, the combination of those heightened regulatory requirements will weigh on return on equity, he said.

Separately, Rogers discussed the company's recent sale of a 20% stake in its insurance arm, Truist Insurance Holdings Inc., to funds managed by private equity firm Stone Point Capital LLC for $1.95 billion. Rogers addressed the future of Truist's insurance biz, like if the company could pursue a full sale or IPO.

The company is not contemplating an IPO, but Rogers said the door is not closed.

"It's not something that's off the table, but it's not something we're currently contemplating," he said. "We want to create the strategic and financial flexibility if and when that was a good opportunity and possibility for our shareholders."