Part I The Elements of Bank Financial Supervision, 6 Total Loss-Absorbing Capacity

Subject(s):

Bank resolution and insolvency — Regulation of banks — Financial regulation — Tier 1 capital — Tier 2 capital

Post-crisis banks are subject to two overlapping authorities: regulatory authority and resolution authority. Both are concerned with the survival of the bank in a crisis, and both have the power to instruct a bank as to how it should structure itself to address that possibility. Total Loss Absorbing Capital (TLAC) is the most significant point of overlap between these two authorities. Viewed from the perspective of a resolution authority, TLAC is simply a name for that proportion of the liabilities of a bank which can be converted into capital in a resolution. However, viewed from the perspective of a prudential supervisor, the TLAC requirement can be viewed as a capital requirement capable of being met with a wider range of instruments than those which qualify as Tier 1 or Tier 2. This chapter discusses TLAC requirements, composition of TLAC, treatment of TLAC holdings by other banks, and the EU's approach to TLAC.