Jointly drafted by the FSB and Basel Committee on Banking Supervision (BCBS), the proposals would form a new minimum standard for total loss-absorbing capacity (TLAC).
Primarily designed to prevent taxpayers from being exposed to loss both before and during resolution of G-SIBs, the TLAC standard would also enable resolution authorities to implement a resolution strategy that minimises any impact on financial stability and ensures the continuity of critical economic functions.
FSB chair Mark Carney said: "Agreement on proposals for a common international standard on total loss-absorbing capacity for G-SIBs is a watershed in ending "too big to fail" for banks.
"Once implemented, these agreements will play important roles in enabling globally systemic banks to be resolved without recourse to public subsidy and without disruption to the wider financial system."
Combined with other measures, TLAC is expected to act to remove the implicit public subsidy from which G-SIBs currently benefit when they issue debt and incentivise creditors to better monitor G-SIBs’ risk-taking, while reducing their funding cost advantage.
By considering individual G-SIBs’ recovery and resolution plans, their systemic footprints, business models, risk profiles and organisational structures, the proposals eventually provide guidance for home and host authorities on how to determine a firm-specific Pillar 2 TLAC requirement in addition to the common Pillar 1 TLAC minimum.
Working in collaboration with the BCBS and the Bank for International Settlements early next year, FSB will undertake comprehensive impact assessment studies to inform the calibration of the Pillar 1 element of the TLAC requirement for all G-SIBs.
Public comments and responses should be submitted by 2 February 2015, which will be combined with impact assessments for finalisation of TLAC proposals by the time of the next G20 Leaders’ Summit in 2015.
Image: FSB has drafted new rules for the adequacy of loss-absorbing and recapitalisation capacity of global systemically important banks. Photo: Kittisak/ FreeDigitalPhotos.net.
