Europe and International
The implementation of the TLAC standard completes the measures in place to reinforce the robustness of systemic banks and renders the European proposal on the separation of banks obsolete
The Financial Stability Board has issued its proposal for the TLAC (Total Loss Absorbing Capacity) standard for global systemically important banks.
With the new standard, which will be submitted to the G20 at its next meeting of 15 and 16 November in Turkey, regulators have laid the final stone in the reinforcement of banking regulations that began in 2008.
The aim of the TLAC is to define new requirements in terms of capital and convertible debt for major banks which, should they find themselves in difficulty, will ensure that they have sufficient resources to maintain critical functions for financial stability without recourse to public funds or compromising deposits. It constitutes a response to the specific risk that banks above a certain size could represent. As a result, the European proposal on the separation of banks, justified at the time of its publication by the need to respond to the question of banks that are “too-big-to fail”, is now obsolete.
The TLAC overlaps with the resolution mechanisms already in place in Europe, notably the MREL (Minimum Requirement for own funds and Eligible Liabilities). It is therefore vital that it be properly calibrated and articulated with existing measures during its transposition into European Community law. French banks will be particularly vigilant. It is essential that the new standard upholds the specific characteristics of the universal banking model used by institutions in Europe.
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