Final standard on TLAC holdings published by the Basel Committee

October 12, 2016

The Basel Committee on Banking Supervision (BCBS) has 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.

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, but later for those whose headquarters are in emerging market economies.

Further details on the publication can be found here.