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Wednesday, November 12, 2014

International Body Issues Loss-Absorbency Standard

In advance of the Group of 20 heads of government meeting in Brisbane, Australia, this week, the Financial Stability Board released a proposed framework for total loss absorbing capital, or TLAC. The standard will require global systemically important banks to hold TLAC that can be called upon should the company fail and need to be wound down.

FSB Chairman and Bank of England Governor Mark Carney called the framework “a watershed in ending ‘too big to fail’ for banks,” noting that it would help regulators resolve the largest banks “without recourse to public subsidy and without disruption to the wider financial system.”

Under the standard, the minimum TLAC level would be 16-20 percent of risk-weighted assets, although national regulators could set the standard higher. G-SIBs with surcharges as determined by the Basel Committee would see corresponding increases in TLAC up to 25% of risk-weighted assets.

TLAC would supplement, not overlap with, existing capital requirements. Banks would not be able to count capital used to meet the Basel III capital conservational buffer to meet their TLAC requirements. The framework exempts banks based in emerging markets, which exempts China’s three G-SIBs — including the world’s largest bank by asset size. Comments on the proposal are due Feb. 2, 2015.

Read the proposal.

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