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Tuesday, February 3, 2015

ABA, Trade Groups Comment on Loss-Absorbency Standard

The Financial Stability Board’s proposed framework for total loss absorbing capital, or TLAC, is a significant step on the road to making sure that taxpayer funds will not be needed to resolve a large bank, ABA and three other trade groups said.

Combined with the FDIC’s “single point of entry” strategy, the TLAC standard — when implemented in the U.S. by the Federal Reserve — is expected to “ensure that creditors and shareholders, and not taxpayers, bear losses in the event of failure,” the groups said. 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.

The groups urged several changes to the TLAC framework before it is finalized. They sought improvements in the calibration and eligibility of external TLAC and in the scope of excluded liabilities, and they requested further clarity on some aspects of internal TLAC.

Read the comment letter.

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