TLAC: Will bank bonds become a riskier bet?


Shrinking supply in the bank debt sector could be reversed if the Total Loss Absorption Capital rules come to pass, but will bank bonds become riskier? Annabelle Williams reports.

Proposed regulation requiring banks to nearly double capital reserves could prompt a surge in bank debt issuance. The Total Loss Absorption Capital (TLAC) requirement, proposed by the Financial Stability Board, would require a minimum 16%-20% of risk-weighted assets held as a shock-absorber, in addition to exiting capital buffers. This would be nearly double the Basel III total capital ratio requirement of 10.5% by 2019. Although banks have already been called upon by local regulators to strengthen their capital reserves, the FSB is hoping for a globally agreed level of loss-absorbing...

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