- Total Loss Absorbency Capacity rules to be completed by 2015 G20 summit
- new risks may emerge outside the financial system’s core
- must be clear in advance if senior debt counts as TLAC
Carney talking in his FSB role at a meeting in Basel
The Financial Stability Board’s (FSB) proposed requirement for total loss-absorbing capital (TLAC) to be held by systemically important banks had been rumoured to double the amount of capital that banks need and a provisional deal had been reached whereby TLAC required will be between 16% and 20% of risk-weighted assets, due to be phased in by 2019.Under the present Basel III rules, banks are required to meet a minimum total capital ratio of 10.5% by 2019.
The FSB’s proposals are targeted at 29 global banks that it deems to be too big to fail. The proposals will limit the extent to which unsecured senior debt can count towards TLAC, and might also include a regulatory deduction on holdings of other bank debt as part of this buffer – to minimize contagion in the event of a bank failure. While these proposals have the strong support of regulators in the US and UK, they are likely to be hugely unpopular in Europe if passed as planned
Euromoney has more background here
Carney – TLAC not going to please everyone
