Basel Committee: Final standard on TLAC holdings

13 October 2016

The standard seeks to limit contagion within the financial system if a 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.

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