Featured Product

    FED Revises Definition of Eligible Retained Income in TLAC Rule

    March 23, 2020

    In light of recent disruptions in economic conditions due to the COVID-19 outbreak, FED issued an interim final rule that revises the definition of eligible retained income for the purposes of the total loss-absorbing capacity (TLAC) rule of FED. The revised definition of eligible retained income will make any automatic limitations on capital distributions that could apply under the TLAC rule more gradual and aligns with the recent action taken by US Agencies (FDIC, FED, and OCC) with respect to the regulatory capital rule. The interim final rule will be effective on its publication in the Federal Register. Comments on the interim final rule must be received no later than 45 days after its publication in the Federal Register.

    US Agencies (FDIC, FED, and OCC) recently revised a core aspect of the buffer requirements in the capital rule, the definition of “eligible retained income.” FED is now issuing this interim final rule to carry over this change to the TLAC buffer requirements. By modifying the definition of eligible retained income and, thus, allowing the covered companies to use their capital buffers in a more gradual manner, the interim final rule should help to promote lending activity and other financial intermediation activities by covered companies and avoid compounding negative impact on the financial markets. The interim final rule revises the definition of eligible retained income in the TLAC rule to the greater of

    • A covered company’s net income for the four preceding calendar quarters, net of any distributions and associated tax effects not already reflected in net income, and
    • The average of a covered company’s net income over the preceding four quarters.

    This definition will apply with respect to all of the TLAC buffer requirements under the TLAC rule. The interim final rule is intended to facilitate use, by a covered company, of TLAC buffers as intended and to serve as a financial intermediary and source of credit to the economy. As noted, this revision would reduce the likelihood that a covered company is suddenly subject to abrupt and restrictive distribution limitations in a scenario of lower than expected TLAC levels.

    The revised definition of eligible net income in the interim final rule allows a covered company to more gradually reduce distributions as it enters stress and provides a covered company with stronger incentives to continue to lend in such a scenario. Also by enabling a covered company to gradually decrease capital distributions as it enters stress (rather than mandating a sharp decrease), the rule could incrementally reduce the covered company’s loss-absorption capacity in stress. The definition of eligible retained income affects the distributions of covered companies with TLAC levels within their TLAC buffer requirements. It does not have an impact on minimum TLAC or long-term debt levels. As such, the revised definition of eligible retained income in the interim final rule is not likely to have any noticeable effect on the TLAC or long-term debt requirements applicable to covered companies.

     

    Related Links

    Comment Due Date: FR+45 Days

    Effective Date: Date of Publication in FR

    Keywords: Americas, US, Banking, Regulatory Capital, COVID 19, TLAC, Loss-Absorbing Capacity, Basel III, Eligible Retained Income, Interim Rule, FED

    Featured Experts
    Related Articles
    News

    APRA Announces Deferral of Capital Reform Implementation

    APRA announced that it is deferring the scheduled implementation of Basel III reforms in Australia by one year.

    March 30, 2020 WebPage Regulatory News
    News

    IFRS Publishes Statement on Its Work During the COVID-19 Crisis

    IFRS, in its statement, emphasized that it shares global concerns about the impact of COVID–19 and is supporting its stakeholders by reconsidering timelines of its meetings and publications, providing information on the application of IFRS 9 on financial instruments, and offering calendar updates on ongoing activities.

    March 27, 2020 WebPage Regulatory News
    News

    US Agencies Announce Changes to SA-CCR and CECL Rules Due to COVID-19

    In light of the recent disruptions in economic conditions due to the COVID-19 outbreak, US Agencies (FDIC, FED, and OCC) announced two actions to allow banking organizations to continue lending to households and businesses.

    March 27, 2020 WebPage Regulatory News
    News

    IAIS Adjusts Work Program to Address Impact of COVID-19 on Insurers

    Considering the impact of COVID-19 outbreak, IAIS announced initial adjustments to its work program to provide operational relief to its member supervisors, insurers, and other stakeholders.

    March 27, 2020 WebPage Regulatory News
    News

    OSFI Announces Regulatory Adjustments to Support COVID-19 Efforts

    OSFI published three targeted industry letters that announce a series of regulatory adjustments to support the financial and operational resilience of federally regulated banks, insurers, and private pension plans in the light of COVID-19.

    March 27, 2020 WebPage Regulatory News
    News

    UK Regulators Announce Measures to Address Impact of COVID-19

    UK Regulatory Authorities published statements and guidance addressed to financial entities on dealing with the impact of the coronavirus (COVID-19) outbreak.

    March 26, 2020 WebPage Regulatory News
    News

    ISDA and Industry Request Delay in Timeline for Initial Margin Rules

    Considering the challenges posed by the COVID-19 pandemic, ISDA submitted a letter on behalf of 21 industry associations and their members requesting BCBS, IOSCO, and global regulators to suspend the current timeline for the initial margin phase-in.

    March 26, 2020 WebPage Regulatory News
    News

    FCA, FRC, and PRA Issue Joint Statement to Address Impact of COVID-19

    In response to the COVID-19 outbreak, FCA, the Financial Reporting Council (FRC), and PRA have announced a series of actions and made statements to support the continued functioning of capital markets in the UK.

    March 26, 2020 WebPage Regulatory News
    News

    EC Rule Corrects Regulation Supplementing Solvency II Directive

    EC published the EU Delegated Regulation 2020/442, which corrects the EU Delegated Regulation 2015/35 that supplements Solvency II Directive (2009/138/EC).

    March 26, 2020 WebPage Regulatory News
    News

    FED and FFIEC Offer Reporting Relief to Institutions Due to COVID-19

    FED and FFIEC announced regulatory reporting relief to financial institutions due to disruptions caused by the COVID-19.

    March 26, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 4900