The “too-big-to-fail” (TBTF) problem arises when the failure of a systemically important financial institution leaves public authorities with no option but to bail it out using public funds to avoid financial instability and economic damage. The knowledge that this can happen encourages those institutions to take excessive risks.
In this regard, at the St. Petersburg Summit in 2013 the G20 Leaders called on the FSB to assess and develop proposals by end-2014 on the adequacy of the loss absorbing capacity of those entities when they fail.
To this end, on November 2014 the FSB published, in consultation with the BCBS, a consultative document on the total loss-absorbing capacity (TLAC) of global systemically important banks (G-SIBs) in resolution.
After the consultation period, the FSB published the final standard on TLAC for G-SIBs on November 2015, including high level principles and a detailed Term Sheet.
The technical note prepared by Management Solutions’ R&D department analyses the Term Sheet published by the FSB and the major implications for financial institutions arising from its implementation.
The TLAC consists of instruments that an institution must hold and that can be legally, feasibly, effectively and operationally written down or converted into equity in case of resolution, in an amount that exceeds the capital and leverage requirements.
Scope of application:
There are two types of TLAC requirements: an External TLAC requirement, which applies to resolution entities; and an Internal TLAC requirement, which applies to subsidiaries considered material sub-groups.
Download the technical note by clicking here.
Latest technical notes released:
|Overview of the impacts and potential lines of action after the Basel III reform|
|Basel III: Finalising post-crisis reforms|
|Guidelines on PD estimation, LGD estimation and the treatment of defaulted exposures|
|Amendments of Circular 4/2017 on public and confidential financial information standards and formats, in relation with the Proyecto de Circular|
|Stress testing in the UK banking system: 2017 results|
© GMS Management Solutions, S.L., 2018. All rights reserved. The information contained on this publication is of a general nature and does not constitute a professional opinion or an advisory service. The data used in this publication come from public sources. GMS Management Solutions, SL assumes no liability for the veracity or accuracy of such data.