Deployment of Unallocated Total Loss-Absorbing Capacity (uTLAC): Considerations for Crisis Management Groups (CMGs)
The purpose of unallocated Total Loss-Absorbing Capacity (uTLAC) is to provide readily available resources to the resolution entity to recapitalise any direct or indirect subsidiary as necessary to support a resolution.
The Total Loss-Absorbing Capacity (TLAC) standard has been designed so that failing global systemically important banks (G-SIBs) will have sufficient loss-absorbing and recapitalisation capacity available in resolution. TLAC resources that are not distributed to material sub-groups in excess of those needed to cover risks on the resolution entity’s solo balance sheet are known as unallocated TLAC (uTLAC).
uTLAC could provide a pool of readily available and fungible resources of the resolution entity that can be used in a flexible manner to address capital shortfalls at the level of (i) the resolution entity, (ii) material sub-groups beyond what can be covered by internal TLAC and/or (iii) any other direct or indirect subsidiary in line with the resolution strategy.
The objective of this report is to be transparent in relation to a set of considerations that have been developed for crisis management groups (CMGs) and to assist home and host authorities in their discussions on the possible form, location and approaches to deployment of uTLAC resources in resolution planning and in the run-up to and during resolution.
The report focuses on the identification of corresponding assets in which uTLAC is held, as well as the analysis of their deployment, in particular in a cross-border context, and identifies potential legal, regulatory and operational challenges that may arise. Challenges may vary depending on the form and location in which assets corresponding to the amount of uTLAC resources may be held, as well as the type of mechanisms used to deploy them.
This report aims to facilitate CMG discussions on uTLAC resources as part of resolution planning for G-SIBs, while maintaining flexibility for CMGs to prioritise and discuss topics as pertinent. It also aims to inform the public and build understanding of the FSB’s work on uTLAC.
The considerations contained in this report are explicitly not guidance or guidelines for G-SIBs, do not propose any preferred approach for CMGs and do not alter or supersede the FSB’s TLAC Principles and Term Sheet or Guiding Principles in any way.
In 2023 and 2024, the FSB will be asking CMGs about their experiences with discussions based on the set of considerations described in this report.