Total Loss Absorbing Capacity

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Bank resolution and recovery - bank supervision

(TLAC, sometimes T-LAC).

The term eventually favoured by the Financial Stability Board (replacing Gone-concern or Gone Concern Loss Absorbing Capacity - GCLAC or GLAC) to describe the debt or capital available to absorb losses in (mostly) banks. The Financial Stability Board (FSB) uses the abbreviation TLAC.

TLAC is closely related to (but different from) the term Minimum Requirement for Own Funds and Eligible Liabilities (MREL) used in the European Bank Recovery and Resolution Directive.

External TLAC applies to each resolution entity in a bank group.

Internal TLAC applies to subsidiaries of a resolution entity not being resolved in the entity's home jurisdiction and can include for example collateralised guarantees provided from the parent.

As at the end of 2014, TLAC was due to be applied to G-SIBs (Global systemically important banks) not before 1 January 2019. The FSB published a consultation in November 2014 [1] on the working of a TLAC approach to bank resolution.

The incompleteness of the process proposed and its (perhaps inevitable) pro-cyclicality have caused concern (e.g. [2]). Development of the process is likely to continue for a long time and to face controversy in many jurisdictions.

Sometimes known as Total Loss Absorbing Capital.

See also