Financial Stability Board Proposes TLAC Requirements for G-SIBs

On November 10, 2014, the Financial Stability Board (“FSB”) released a proposal to require global systemically important banks (“G-SIBs”) to hold a combination of regulatory capital and other loss absorbing instruments in an amount sufficient to recapitalize the G-SIB in resolution. This proposed requirement to hold so-called “total loss absorbency capacity” or “TLAC” is designed to support both the resiliency and resolvability of G-SIBs by ensuring that they maintain sufficient loss absorbing and recapitalization capacity so that, during and after a resolution, “critical functions can be continued without taxpayers’ funds (public funds) or financial stability being put at risk.”

The proposal sets out a set of principles and a term sheet and requests comments by February 2, 2015. The FSB has announced that once the comments have been received it will conduct additional analysis, including a quantitative impact study and a market survey, before releasing final standards at the next G-20 Summit in November 2015. Global implementation is not anticipated until January 2019. Ultimately, the final requirements will be implemented under national law.

Our Alert Memo discusses the complex issues raised by the FSB proposal and suggests considerations in responding to those issues.