As discussed in an earlier article in this publication, on October 30, 2015, the Federal Reserve Board (“FRB”) issued its notice of proposed rulemaking relating to U.S. bank holding companies which are G-SIBs and the intermediate holding companies of foreign banking organizations that are G-SIBs. Among other things, U.S. G-SIBs will be required to maintain a minimum amount of unsecured long-term debt and a minimum about of total loss-absorbing capital (“TLAC”).9

In response to the FRB’s invitation for comments on the proposed TLAC rule, the Structured Products Association (“SPA”) posted a comment response letter.10 The SPA letter responds to the following aspects of the proposed rule:

  • Clarification that certain rate-linked notes and non-USD denominated instruments are excluded from the definition of “structured note” (and, consequently, would be eligible debt securities);
  • Clarification that debt securities linked to readily ascertainable reference rates are eligible debt securities;
  • A proposal to add a “default amount” provision to structured notes, causing their value to be readily ascertainable upon an acceleration after an event of default; and
  • A discussion of the 5% cap on the value of a covered bank holding company’s eligible external TLAC for certain non-contingent liabilities to third parties that are not otherwise eligible debt securities. Structured notes that are not considered eligible long-term debt are subject to the 5% cap. The SPA letter questions the rationale behind this exclusion.

The deadline for submitting comment response letters to the FRB was recently extended from February 1, 2016 to February 16, 2016.