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Adequacy of loss-absorbing capacity of G-SIBs in resolution (TLAC)

FSB

The FSB has published principles and guides on the adequacy of loss absorption and recapitalization capacity of G-SIBs.

The report on too-big-to-fail (TBTF) published by the FSB in September 2013 identified the need to develop a proposal on loss absorption capacity at the time of resolution as one of the most important issues to be addressed by the FSB to end TBTF.

In this sense, the FSB has developed policy proposals for public consultation which consist of a set of principles on the adequacy of loss absorption and recapitalization capacity of global systemic banks (G-SIBs), and guides to implement these principles under an internationally agreed standard.
The aim of the new requirements on total loss absorbing capacity (TLAC) is to ensure that G-SIBs have the necessary loss absorbing and recapitalization capacity to ensure that, in the event of resolution and immediately thereafter, critical bank functions are maintained without risking taxpayer funds or financial stability.

In Europe, the Bank Resolution and Restructuring Directive (BRRD) requires lenders to comply at all times with certain minimum requirements for own funds and eligible liabilities (MREL) in order to prevent them from structuring their liabilities so as to prevent internal recapitalization.
Below is an executive summary and main characteristics of the principles that G-SIBs will have to implement.

Executive summary

The FSB has established a new total loss absorption capacity (TLAC) requirement in addition to the Basel capital requirements and applicable to all G-SIBs. 

Scope of application

  • All G-SIBs whose headquarters are not in an emerging country .

Prior regulation

  • Key Attributes of Effective Resolution Regimes for Financial Institutions, published by the FSB in October 2011.
  • Guidance on Developing Effective Resolution Strategies, published by the FSB in July 2013.
  • Progress and Next Steps Towards Ending “Too-Big-To-Fail” (TBTF), published by the FSB in September 2013.

 

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