Industry examines Fed’s TLAC rule

Author: Edward Price | Published: 22 Feb 2016

A coalition of US industry associations have commented on the Federal Reserve’s proposed total loss absorbing capacity (TLAC) rule. While the industry bodies welcomed the proposal’s contribution to ending too big to fail (TBTF), they also expressed concern over the Fed’s inclusion of long-term debt (LTD) requirements as well as over a number of other, technical issues.

Last year, the Federal Reserve came out with its proposed TLAC requirements for global systemically important banks (G-SIBs). The Fed also added clean holding company requirements and, in a surprise twist, long-term debt requirements on G-Sibs. That went beyond the Financial Stability Board’s (FSB) suggestions.

TLAC proposals examined

TLAC is designed to help resolve very large financial institutions at the sole expense of creditors and shareholders. As such, industry in the US supports a TLAC requirement for G-Sibs, albeit where calibrated appropriately.

“To us, the significance of the proposed...