Global banks appear well-prepared to meet TLAC requirements

The Financial Stability Board also released details on total loss-absorbing capacity, or TLAC, requirements that all 30 G-SIBs will need to meet. The rule requires that a bank have sufficient amounts of debt that could be bailed in to recapitalize it in times of crisis...

The Financial Stability Board also released details on total loss-absorbing capacity, or TLAC, requirements that all 30 G-SIBs will need to meet. The rule requires that a bank have sufficient amounts of debt that could be bailed in to recapitalize it in times of crisis. Essentially, in times of crisis, the new class of TLAC debt could be converted into equity to recapitalize a foundering bank.

While estimates suggest banks will need to issue a lot of this debt, some analysts remain skeptical that the plan will work in practice. International regulators estimate the rules could require G-SIBs to issue as much as €1.1 trillion in new debt. U.S.-based G-SIBs have to meet the Federal Reserve’s requirements, which are more stringent. Swiss regulators also have passed tougher TLAC requirements for banks based there. Both the Fed and the FSB require total TLAC equivalent to 18% of risk-weighted assets by 2022, but the Fed set a higher minimum TLAC leverage ratio requirement at 9.5%, fully phased-in, compared to 6.75% at the international level. The Fed estimated U.S.-based G-SIBs would need up to $120 billion of new debt to meet the TLAC requirements.

Next Finance , November 2015

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