Shearman & Sterling LLP | FinReg | Financial Stability Board Reports on Implementation of the TLAC Standard
Financial Regulatory Developments Focus
This links to the home page
Financial Regulatory Developments Focus
  • Financial Stability Board Reports on Implementation of the TLAC Standard

    The Financial Stability Board has published a report on the Review of the Technical Implementation of the Total Loss-Absorbing Capacity (TLAC) Standard. The FSB conducted a review of implementation of the TLAC Standard by jurisdictions that covered the Global Systemically Important Banks to which the TLAC Standard applied as at January 1, 2019 and the home and material host jurisdictions of those G-SIBs. The focus of the review was assessing whether implementation aligns with the timelines and objectives set out in the TLAC Standard.

    The FSB states in the report that there has been steady progress in setting of external TLAC and the issuance of external TLAC by G-SIBs. The external TLAC requirements follow the TLAC Standard requirements and eligibility criteria. The report notes, however, that there are areas where further work is needed, such as implementation of the TLAC Holdings Standard issued by the Basel Committee on Banking Supervision in October 2016 and on the internal distribution of TLAC in groups. In addition, the FSB reports that authorities and firms have highlighted issues impacting the implementation of the TLAC Standard, including:
    • the absence of enforceable arrangements or mechanisms to ensure that non-pre-positioned TLAC resources can be used to recapitalize material subsidiaries or subgroups in times of stress;
    • the negative effect that the regulatory requirements on internal TLAC in host jurisdictions may have on the capacity and incentives for authorities and firms to improve the management of non-pre-positioned TLAC resources; 
    • certain call features and triggers of TLAC instruments potentially creating complexity and reducing legal certainty in resolution;  
    • limitations on the cross-border issuance of TLAC-eligible instruments that may reduce access to a larger investor base; 
    • technical issues relating to bail-in execution arising from the format of the issuance or the laws of the jurisdiction governing that issuance; and 
    • the interaction between Tier 2 capital instruments and TLAC instruments potentially giving rise to a non-level playing field between G-SIBs and domestic systemically important banks.

    The FSB concludes that, at this time, there is no need to amend the TLAC Standard. Going forward, the FSB intends to continue monitoring the implementation of the TLAC Standard and the issue of TLAC instruments by G-SIBs.  It will also examine how jurisdictions have implemented TLAC, to assess whether any further guidance is needed. It will take steps to address some of the issues raised, for example, by assessing how resolution-related disclosures could be enhanced and considering the technical issues relating to the bail-inability of TLAC.

    View the FSB's report.

    View details of the FSB's June 2018 Call for Feedback.

    Return to main website.