TLAC proposal raises concerns ahead of Brisbane meeting

Author: Ashley Lee | Published: 4 Nov 2014

Market participants believe that the Financial Stability Board’s (FSB’s) proposals for total loss absorbing capacity (TLAC) are well-intended, but question whether banks will be able to implement it.

The TLAC would add an extra layer of loss-absorbency capacity to global systemically important banks (G-Sibs). A consultation paper is expected to be released at this year’s G-20 meeting in Brisbane on November 15 and 16.

It is likely to comprise senior unsecured or subordinated debt. But it will be hugely expensive for G-Sibs. It’s expected that the minimum TLAC requirement will be at least twice the Basel III risk-weighted assets requirement – excluding all buffers.

Tokio Morita, deputy commissioner of the Japan Financial Services Authority, declined to comment on unpublished proposals, but explained that the TLAC combines the Basel III principles with the concept of gone-concern loss absorbing capacity (GLAC) while speaking at Thomson Reuters’ Pan Asia Regulatory...