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Total Loss-Absorbing Capacity

Raymond Michaels, International Banker, The Importance of TLAC Banking Regulations, here.

On October 31, the US Federal Reserve Board (FRB) introduced a unanimously approved rule that will hold the eight biggest US banks—JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, Goldman Sachs, Morgan Stanley, State Street and Bank of New York Mellon—to new stringent capital requirements. The rules will be in line with those stipulated by the Total Loss-Absorbing Capacity (TLAC), a set of capital regulations announced on November 10, 2014, and designed by the Financial Stability Board (FSB), a global financial-system monitoring and coordinating body based within Basel’s Bank for International Settlements.

The TLAC itself is being imposed by the FSB on many of the world’s biggest lenders, ones deemed as being “systemically important”. Known as “G-SIBs”, the 30 banks in total include the aforementioned US lenders as well as global players including HSBC, Barclays, BNP Paribas, Deutsche Bank and Mitsubishi UFJ, with each one mandated to meet the minimum requirements of holding 16 percent of consolidated risk-weighted assets by 2019, which is then expected to rise to 18 percent by 2022. This threshold, therefore, is significantly higher than the 10.5 percent minimum of regulatory (Tier 1 and 2) capital that the Basel III rules currently require all banks to hold, also by 2019.

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