The Financial Stability Board has finalized total loss absorbing capacity (TLAC) standards for global systemically-important banks (G-SIBs), modifying its proposal in significant ways designed to make it less onerous in nations that choose not to “gold-plate” the global provisions. Like several other nations, the U.S. has elected a far more stringent approach that is not only tougher, but also aimed principally at preventing run-risk. The FSB in contrast views TLAC as a solvency buffer limiting the need for backstop taxpayer support. Other recent FSB actions reinforce this focus, with global regulators laying out proposed principles for temporary G-SIB public support that do not appear to take TLAC into account, although the final FSB TLAC standards allow for reliance on significant amounts of any such temporary liquidity support to count as TLAC. The final FSB standards are, however, tougher than the proposal in one significant respect: they now bring Chinese G-SIBs under TLAC at considerable cost to these banks, although the effective date just for them has been extended in recognition of the challenge that raising TLAC will pose.
The full report is available to retainer clients. To find out how you can sign up for the service, click here.