Final standard on TLAC holdings published by the Basel Committee
12 October 2016
The Basel Committee on Banking Supervision has today published a final standard on the regulatory capital treatment of banks' holdings of total loss-absorbing capacity (TLAC) instruments. The standard seeks to limit contagion within the financial system if a global systemically important bank (G-SIB) were to enter resolution.
In November 2015, the Financial Stability Board published its Principles on loss-absorbing and recapitalisation capacity of G-SIBs in resolution and total loss-absorbing capacity (TLAC) term sheet. These standards introduce minimum TLAC requirements for global systemically important banks (G-SIBs). At that time, the Basel Committee consulted on a prudential treatment for TLAC instruments held by banks (both G-SIBs and non-G-SIBs).
The final standard reflects changes made following the public consultation, and includes the following elements:
Holdings of TLAC instruments, and instruments ranking pari passu with subordinated forms of TLAC, that are not already included in regulatory capital must be deduced from Tier 2 capital.
The deduction is subject to the thresholds that apply to existing holdings of regulatory capital and an additional 5% threshold for non-regulatory capital TLAC holdings only.
To be eligible for the additional 5% threshold, G-SIBs' holdings must meet additional conditions, including being held in the trading book.
The standard will take effect at the same time as the minimum TLAC requirement for each G-SIB, ie 1 January 2019 for most G-SIBs.