Review of the Technical Implementation of the Total Loss-Absorbing Capacity (TLAC) Standard
This report sets out a technical review of the implementation of the Total Loss-Absorbing Capacity (TLAC) Standard.
The TLAC Standard, published in 2015, was designed so that failing global systemically important banks (G-SIBs) will have sufficient loss-absorbing and recapitalisation capacity for authorities to implement an orderly resolution. Being able to implement orderly resolution minimises impacts on financial stability, maintains the continuity of critical functions, and avoids exposing public funds to loss.
The review concludes that progress has been steady and significant in both the setting of external TLAC requirements by authorities and the issuance of external TLAC by G-SIBs. This has been instrumental in enhancing the resolvability of G-SIBs, strengthening cooperation between home and host authorities and boosting market confidence in authorities’ capabilities to address too-big-to-fail risks.
The FSB sees no need to modify the TLAC Standard at this time. However as implementation is ongoing, further efforts are needed to implement the TLAC Standard fully and effectively and to determine the appropriate group-internal distribution of TLAC resources across home and host jurisdictions.
All G-SIB home jurisdictions in the scope of the review and Hong Kong have adopted TLAC Standard-consistent eligibility criteria and exclusions, including a requirement that TLAC be subordinated to operational liabilities. While the TLAC Standard contains an expectation of a debt component, most jurisdictions do not have a firm requirement. Most jurisdictions allow for TLAC-eligible instruments to be issued under third-country law, but insist on the inclusion of contractual recognition clauses and assurances that a bail-in of those instruments is enforceable.
All G-SIBs within the scope of the FSB January 2019 compliance date meet or exceed the TLAC ratios of at least 16% of risk-weighted assets and 6% of the Basel III leverage ratio denominator based on estimates from publicly available data. Estimates of G-SIB issuances of TLAC range between USD 350 and 400bn per year for the past three years. G-SIBs appear to have planned and managed their issuances to take account of market conditions. As of 2018, most TLAC has been issued in USD (about 67%) and EUR (about 19%).
The review was informed by surveys of the home and host authorities of G-SIBs, responses to a call for public feedback and discussions with stakeholders at a roundtable organised by the FSB in September 2018.
The FSB will continue to monitor implementation of the TLAC Standard and issuance of TLAC instruments and report at least annually on progress. To support the effective implementation of the TLAC Standard it will take stock of the range of practices of authorities and Crisis Management Groups in implementing the TLAC Standard, particularly with respect to internal TLAC pre-positioning, the management of non-pre-positioned TLAC and authorities’ approaches as regards the review of the TLAC-eligibility of instruments and their subordination.