The Federal Reserve has released the draft of the U.S. version of global total loss-absorbing capacity (TLAC) standards for global systemically-important banks (GSIBs), applying these also and in different fashion to the intermediate holding companies (IHCs) required for foreign GSIBs. Although the rules do not restrict ownership of TLAC debt or equity, they are stringent with regard to the capital treatment accorded such TLAC at FRB-regulated banking organizations to limit inter-connectedness within the banking system. The NPR also lays out a framework for “clean” BHCs and IHCs so that TLAC debt and equity cannot be structured in a way that puts subsidiaries at risk and parent companies cannot endanger loss-absorbing capacity. These funding restrictions bar parent use of certain liabilities (e.g., short-term MMFs) that may add considerable cost, duration, and interest-rate risk on covered BHCs and IHCs and adversely affect funding providers.
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