TLAC for G-SIBs: The first step

Author: | Published: 24 Nov 2014

By Mark J. Welshimer, partner at Sullivan & Cromwell in London and New York

Earlier this month and in anticipation of the Brisbane G-20 summit, the Financial Stability Board (FSB) released for comment its proposed framework for total loss absorbing capacity (TLAC) that would apply to global systemically-important banks (G-SIBs). The core of the proposal would require G-SIBs to fund themselves with equity and debt instruments that, were the G-SIB to fail, could be written down or converted into common stock in a manner and through a process that would both ensure the continuity of critical functions and avoid exposing taxpayers to loss.

A credible TLAC framework is widely viewed by the regulatory community and most industry participants as an essential tool to address "too big to fail". Any resolution-related framework for international application must be general in some respects in order to accommodate different laws and other circumstances among jurisdictions,...