The G20 nations in November 2015 approved the Financial Stability Board’s (FSB) final term sheet for total loss-absorbing capacity (TLAC) – the layer of capital and debt that can be bailed in to recapitalise a distressed systemic bank in resolution. The FSB has worked hard to accommodate the concerns expressed by banks after a first draft was published a year earlier.
The full compliance deadline has been extended by three years (to 2022) to allow more time for investors to absorb the new, TLAC-eligible securities that banks will need to issue to meet any shortfalls. The FSB has sought ways to ensure a level playing field between banks with single point of entry resolution plans – rolling up the bank from the top – or those with a multiple point of entry resolution approach that would be broken up into separate units. And regulators have also clarified ways to ensure TLAC is subordinated to other obligations, such as operational liabilities, that cannot be bailed in during a resolution.
