US TLAC overshadowed by long term debt plans

Author: Edward Price | Published: 4 Nov 2015

The Federal Reserve Board’s (FRB) draft rule for total loss-absorbing capacity (TLAC) has been overshadowed by  its proposals on long term debt for Global Systemically Important Banks (G-SIBs). Counsel are considering the implications for G-SIBs, smaller banks and foreign bank holding companies.

TLAC earmarks capital for the orderly resolution of failed G-SIBs. According to the FRB, the proposed rule will help avoid the use of government funds if a G-SIB fails, and so tackle 'too big to fail.’

The aggregate shortfall among G-SIBs for external TLAC is currently at $120 billion. G-SIBS now have until January 2019 to meet a 16% TLAC requirement and January 2022 to meet an 18% requirement.

Market participants believe the FRB has made concession in the proposals. According to Carter McDowell, managing director and associate general counsel at Securities Industry and Financial Markets Association (Sifma), the Fed’s awareness of industry views is evident...