On October 30, 2015, the US Board of Governors of the Federal Reserve System proposed a rule, in consultation with the US Federal Deposit Insurance Corporation, requiring the largest US Global Systemically Important Banking Organizations (known as G-SIBs) and the US Intermediate Holding Companies of foreign G-SIBs to maintain a minimum amount of unsecured long-term debt and a minimum amount of “Total Loss-Absorbing Capacity” as a percentage of total risk-weighted assets. Generally, TLAC is intended to increase the resiliency of an organization by providing a significant capital buffer comprised of regulatory capital and certain eligible debt, together with related capital buffers. The long-term debt, once converted to equity, is aimed at absorbing losses and recapitalizing the covered entity's subsidiaries in resolution. There are four major components of the proposed rule: (i) external long-term debt and related TLAC requirements applicable to the top holding company of a US G-SIB; (ii) internal long-term debt and related TLAC requirements applicable to covered US IHCs; (iii) clean holding company requirements; and (iv) regulatory capital deductions applicable to certain investments in long term debt of covered G-SIBs. Additionally, the Federal Reserve Board is requesting comment on internal TLAC requirements for US G-SIBs. Once finalized, the rules would apply to 8 US G-SIBs and their related entities as well as IHCs controlled by non-US G-SIBs. Banking organizations covered by the rule would be required to comply with most of the proposed requirements by January 1, 2019. The calibration of the risk-weighted assets component of the external TLAC requirement would be phased in over a three-year period commencing on January 1, 2019.
The proposed rulemaking is available at: http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20151030a1.pdf.