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  1. #1

    Uncertainty over resolution regime may hamper loss-absorbency standard for big banks

    Even as international standards slowly take shape for total loss absorbency capacity (TLAC) – key element of the regulatory effort to end the perception that major banks are “too-big-to-fail” – pe the end of a consultation period last month left uncertainty lingering over restrictions on many of its provisions, and more importantly, the context in which it would operate.

  2. #2

    Uncertainty over resolution regime may hamper loss-absorbency standard for big banks

    Many of comment letters on the proposal by the G-20 backed Financial Stability Boardhave argued against these elements of the plan: strict requirements over eligibility for debt instruments — and their related cost — that could be counted as TLAC, the large share attributed to long-term unsecured debt within its TLAC composition, and the authority that national regulators are accorded in issuing additional TLAC standards.

  3. #3

    Uncertainty over resolution regime may hamper loss-absorbency standard for big banks

    TLAC is an important cornerstone of the new resolution regime. The regime is intended to bolster confidence in the market that globally systemically important banks, or “G-SIBs,” could no longer be considered too big “too-big-to-fail” while shifting their recapitalization burden, in case of failure, from taxpayers to shareholders and creditors.

  4. #4

    Uncertainty over resolution regime may hamper loss-absorbency standard for big banks

    This recapitalization can be achieved through a “bail-in” scheme — while keeping the critical functions of the institution alive — where certain bank liabilities would be converted into equity in an amount that, at least, doubles the capital and leverage requirements. Since Basel III international capital rules already stipulate an 8 percent minimum capital ratio (with common equity Tier 1 capital of at least 4.5 percent and a total Tier 1 capital –common equity Tier 1 + additional Tier 1– of 6 percent) and 3 percent leverage ratio, this would take the capital and leverage tally up to a total of 16 percent of risk-weighted assets, and 6 percent respectively.

  5. #5
    content from reference site

  6. #6

    Uncertainty over resolution regime may hamper loss-absorbency standard for big banks

    The TLAC concept, therefore, provides an extra layer of capital and long-term unsecured debt in addition to the Basel III capital requirements. The buffer could then be used towards the recapitalization of the failed institution via a newly formed bridge company by its receiver FDIC.

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