Featured Product

    US Agencies Finalize Rule to Reduce Impact of Large Bank Failures

    October 20, 2020

    US Agencies adopted a final rule that applies to advanced approaches banking organizations and aims to reduce interconnectedness in the financial system as well as to reduce contagion risks associated with the failure of a global systemically important bank (G-SIB). The rule requires deduction from a banking organization’s regulatory capital for certain investments in unsecured debt instruments issued by foreign or U.S. G-SIBs for meeting the minimum total loss-absorbing capacity (TLAC) requirements. FED also adopted changes to its TLAC rules to clarify requirements and correct drafting errors. The final rule would become effective on April 01, 2021.

    U.S. G-SIBs as well as U.S. intermediate holding companies of foreign G-SIBs are required to issue debt with certain features under the “total loss-absorbing capacity,” or TLAC, rule of FED. That debt could be used to recapitalize the holding company during bankruptcy or resolution if it were to fail. To discourage the largest banking organizations from purchasing TLAC debt, the final rule prescribes a more stringent regulatory capital treatment for holdings of TLAC debt. Under the draft final rule, category I and category II banking organizations—firms with higher systemic importance—would face an additional requirement with respect to investments they have in TLAC or similar debt instruments issued by U.S. or foreign G-SIBs. Specifically, the rule provides a stringent treatment for such investments by requiring that they be deducted from a firm’s regulatory capital (deduction treatment). The rule excludes certain hedged and market making exposures from the deduction treatment. This treatment would be similar to the FED's current rule for investments in capital instruments issued by a financial institution. The draft of final rule is similar to the proposal from April 2019, with the following changes in response to comments:

    • The draft final rule would rely on the 2019 revisions to the market making framework established by the Volcker rule to identify market making exposures
    • Given their importance to market making, the draft final rule would not apply the deduction treatment to a limited amount of TLAC-related derivative exposures held for more than 30 business days.

    The rule also includes a revision to the TLAC requirements of FED that will require G-SIBs to publicly report their outstanding TLAC debt. The proposal included revisions to the FR Y-9C report to implement the deduction framework for exposures to TLAC debt instruments and to require U.S. G-SIBs and covered intermediate holding companies to disclose their ratios of TLAC and long-term debt that are required under the TLAC rule. FED proposed similar revisions earlier this year in the FR Y-14 report. The draft final rule finalizes these revisions to the FR Y-9C and FR Y-14 generally as proposed, along with minor technical modifications suggested by commenters. The final rule also requires changes to the call reports and the regulatory capital reporting for institutions subject to advanced capital adequacy framework (FFIEC 101), which are expected to be addressed in one or more separate Federal Register notices. 

     

    Related Links

    Effective Date: April 01, 2021

    Keywords: Americas, US, Banking, Reporting, G-SIB, Regulatory Capital, TLAC, Systemic Risk, FR Y-9C, FR Y-14, Call Reports, Basel, US Agencies

    Featured Experts
    Related Articles
    News

    APRA Sets LAC for D-SIBs, Proposes to Enhance Crisis Preparedness

    APRA issued a letter on the loss-absorbing capacity (LAC) requirements for domestic systemically important banks (D-SIBs) and published a discussion paper, along with the proposed the prudential standards on financial contingency planning (CPS 190) and resolution planning (CPS 900).

    December 02, 2021 WebPage Regulatory News
    News

    EC to Review Macro-Prudential Rules while ESRB Assesses Policy Stance

    The European Commission (EC) launched a call for evidence, until March 18, 2022, as part of a comprehensive review of the macro-prudential rules for the banking sector under the Capital Requirements Regulation (CRR) and Directive (CRD IV).

    December 01, 2021 WebPage Regulatory News
    News

    FSB Sets Out Good Practices for Crisis Management Groups

    The Financial Stability Board (FSB) published a report that sets out good practices for crisis management groups.

    November 30, 2021 WebPage Regulatory News
    News

    APRA Penalizes Heritage Bank for Incorrect Reporting of Capital

    The Australian Prudential Regulation Authority (APRA) found that Heritage Bank Limited had incorrectly reported capital because of weaknesses in operational risk and compliance frameworks, although the bank did not breach minimum prudential capital ratios at any point and remains well-capitalized.

    November 29, 2021 WebPage Regulatory News
    News

    OSFI Releases Annual Report 2021-2022

    The Office of the Superintendent of Financial Institutions (OSFI) released the annual report for 2020-2021.

    November 29, 2021 WebPage Regulatory News
    News

    OSFI Updates Timeline for Implementation of Certain Basel Rules

    Through a letter addressed to the banking sector entities, the Office of the Superintendent of Financial Institutions (OSFI) announced deferral of the domestic implementation of the final Basel III reforms from the first to the second quarter of 2023.

    November 29, 2021 WebPage Regulatory News
    News

    EC Defers Adoption of Regulatory Standards for Disclosures Under SFDR

    EIOPA recently published a letter in which EC is informing the European Parliament and Council that it could not adopt the set of draft regulatory technical standards for disclosures under the Sustainable Finance Disclosure Regulation (SFDR) within the stipulated three-month period, given their length and technical detail.

    November 29, 2021 WebPage Regulatory News
    News

    FCA Releases MIFIDPRU Application Forms and Third Set of Rules on IFPR

    The Financial Conduct Authority (FCA) published the third in a series of policy statements that set out rules to introduce the UK Investment Firm Prudential Regime (IFPR), which will take effect on January 01, 2022.

    November 29, 2021 WebPage Regulatory News
    News

    APRA Finalizes Capital Adequacy Standards for Banks

    The Australian Prudential Regulation Authority (APRA) published, along with a summary of its response to the consultation feedback, an information paper that summarizes the finalized capital framework that is in line with the internationally agreed Basel III requirements for banks.

    November 29, 2021 WebPage Regulatory News
    News

    CPMI-IOSCO Seek Comments on Access to Central Clearing and Portability

    The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) issued a consultative report focusing on access to central counterparty (CCP) clearing and client-position portability.

    November 29, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7751