The Financial Stability Board (FSB) today published a technical review of the implementation of the Total Loss-Absorbing Capacity (TLAC) Standard for Global Systemically Important Banks (G-SIBs) in resolution. When fully implemented, the TLAC Standard will promote financial stability by providing confidence that G-SIBs have appropriate capacity to absorb losses and, if necessary, to achieve an orderly resolution and to maintain the continuity of critical functions.
The review concludes that progress has been steady and significant in both the setting of external TLAC requirements by authorities and the issuance of TLAC by G-SIBs. All relevant G-SIBs meet or exceed the TLAC target ratios of at least 16% of risk-weighted assets and 6% of the Basel III leverage ratio denominator. Estimates of G-SIB issuances of TLAC range between USD 350 and 400bn per year for the past three years, in a variety of market conditions. As of 2018, most TLAC had been issued in USD (about 67%) and EUR (about 19%).
The FSB sees no need to modify the TLAC Standard at this time. However, as implementation is ongoing, further efforts are needed to implement the TLAC Standard fully and effectively and to determine the appropriate group-internal distribution of TLAC resources across home and host jurisdictions.
Mark Branson, Chair of the FSB Resolution Steering Group and CEO of the Swiss Financial Market Supervisory Authority FINMA, said: “The successful build-up of loss-absorbing capacity has enhanced the resolvability of G-SIBs and strengthened market belief that too-big-to-fail risks have been reduced. However, the job is not complete. Important challenges remain, particularly in ensuring that, in a crisis, TLAC will be available in the right amounts at all locations within a group.”
The FSB will continue to monitor implementation of the TLAC Standard and issuance of TLAC instruments and report at least annually on progress. To support the effective implementation of the TLAC Standard it will take stock of the range of practices of authorities and Crisis Management Groups in implementing the TLAC Standard, particularly with respect to internal TLAC pre-positioning, the management of non-pre-positioned TLAC and authorities’ approaches as regards the review of the TLAC-eligibility of instruments and their subordination.