As you may be aware, in November 2014, the Financial Stability Board (FSB) proposed a new set of common international standards on "total loss absorbing capacity" (TLAC) for global systemically important banks (G-SIBs) which were to be completed by the Group of Twenty Finance Ministers and Central Bank Governors' (the G20) Antalya Summit in November 2015 following the completion of a series of rigorous impact assessment exercises (see Edition 13 of this SCM Briefing for further background on the TLAC proposals). The FSB has now issued its final set of Principles on Total Loss-Absorbing Capacity and Recapitalisation Capacity of G-SIBs in Resolution, which set a new level of TLAC for G-SIBs that are subject to resolution measures, requiring them to hold a minimum amount of loss-absorbing capital so that they can be resolved without recourse to taxpayer funds. The TLAC requirement would have to met over and above Basel III capital adequacy minimum standards and the additional capital "buffers" that apply under that framework. Specifically, G-SIBs will be required to meet a Minimum TLAC requirement of at least 16% of the group's risk-weighted assets (the TLAC RWA Minimum) from 1 January 2019, and at least 18% from 1 January 2022. Minimum TLAC must also be at least 6% of the Basel III Leverage Ratio denominator (the TLAC Leverage Ratio Exposure (LRE) Minimum) from 1 January 2019, and at least 6.75% from 1 January 2022. G-SIBs headquartered in emerging market economies will have until 1 January 2025 to meet the 16% RWA and 6% LRE Minimum, and until 1 January 2028 to meet the higher 18% RWA and 6.75% LRE requirements (although this timeframe may be accelerated if certain economic targets in those countries are met). The FSB's up-to-date list of G-SIBs (as at 3 November 2015) has been made available (the list includes UK banks HSBC, Barclays, Royal Bank of Scotland and Standard Chartered). The FSB's TLAC Principles are also accompanied by a TLAC "Term Sheet" that is intended to be used as an internationally-agreed standard which defines a requirement for the instruments and liabilities that should be readily available for bail-in as part of G-SIBs' resolution plans (these are, broadly, instruments that are paid-in, unsecured, not subject to set-off or netting, have a minimum remaining contractual maturity of at least one year or are perpetual, are not redeemable by the holder prior to maturity and are not funded directly or indirectly by the resolution entity). The precise practical application of the Principles remains vague, particularly given divergent local laws and regulatory procedures, and the apparent lack of settled processes for deciding how any given bank is resolved, and by whom (with "agreements" between home and host authorities all very well in principle while banks are not subject to arduous and time-pressured resolution measures).
Financial Stability Board Principles on Total Loss-Absorbing Capacity and Recapitalisation Capacity of G-SIBs in Resolution and G-SIB List