Base rate and SLAC: Difference between pages

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1. ''Reference rates''.
Secondary Loss Absorbing Capital.


Generally, a base rate is a widely recognised and quoted interest rate - such as the Fed funds rate, the prime rate, or LIBOR - by reference to which a rate of interest is calculated.  
In the field of bank recovery and resolution SLAC is used, especially in the UK, to refer to  other liabilities that could be written down in a distressed institution but would not be first in the firing line - that being primary loss absorbing capital ([[PLAC]]) comprising equity and bail-in-able long-term debt. The [[Financial Stability Board]] uses the term gone-concern loss absorbing capital (GLAC or [[GCLAC]]) more broadly.


More properly, these are a "reference rate" or a "benchmark rate". These terms avoid confusion with Base Rate (see below).


For example, in the phrase ‘LIBOR plus 50 basis points’, LIBOR is the base (reference) rate.
SLAC is sometimes expressed as Secondary Loss Absorbing ''Capacity'', reflecting the fact that some loss-absorbing capacity is provided by items which are not necessarily capital instruments, for exam via bailin.
 
 
2. ''Central bank rates''.
 
More particularly, a central bank rate may be known as Base Rate. 
 
This is normally the rate at which the central bank will lend overnight funds, commonly of a secured basis, to financial institutions.
 
By changing this Base Rate, the central bank may hope to influence market rates generally. It seems that anticipated changes to Base Rate are one of the largest influences on movements in general market interest rates between actual Base Rate changes<ref>Paul Mizen and Boris Hofmann [http://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/2002/wp170.pdf "Working Paper No 170: Base rate pass-through: evidence from banks' and building societies' retail rates"], London, 2002, ISSN 1368-5562. Retrieved on 21 July 2014.</ref>.
 
 
Base Rates, if secured, are like the [http://www.federalreserve.gov/monetarypolicy/discountrate.htm discount rate] applied to loans to eligible institutions from the US Federal Reserve Banks under the primary credit program of their "discount window".




== See also ==
== See also ==
* [[Alternate Base Rate]]
*[[Bailin]]
* [[Benchmark]]
*[[Capital]]
* [[Forward guidance]]
*[[Capital adequacy]]
* [[LIBOR]]
*[[Contingent capital]]
* [[Official Bank Rate]]
*[[Loss absorbing capacity]]
* [[Reference bank]]
*[[GCLAC]] also referred to GLAC
 
*[[Primary Loss Absorbing Capital]]  (PLAC)
 
* [[Recovery]]
==References==
* [[Resolution]]
 
<references />


[[Category:Manage_risks]]
[[Category:Compliance_and_audit]]
[[Category:Risk_frameworks]]

Revision as of 12:29, 25 June 2022

Secondary Loss Absorbing Capital.

In the field of bank recovery and resolution SLAC is used, especially in the UK, to refer to other liabilities that could be written down in a distressed institution but would not be first in the firing line - that being primary loss absorbing capital (PLAC) comprising equity and bail-in-able long-term debt. The Financial Stability Board uses the term gone-concern loss absorbing capital (GLAC or GCLAC) more broadly.


SLAC is sometimes expressed as Secondary Loss Absorbing Capacity, reflecting the fact that some loss-absorbing capacity is provided by items which are not necessarily capital instruments, for exam via bailin.


See also

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