As anticipated, the FRB today unanimously finalized the U.S. TLAC standards, continuing to differentiate these from global requirements (see FSM Report TLAC4) with a focus on a buffer of long-term debt (LTD), not equity as the mechanism to ensure orderly resolution. The most significant change in the final rule is grandfathering of current debt that meets all but a few of the rule’s eligibility standards, a change that along with lower RWAs and more capital at covered entities leads to a decrease in the shortfall from $120 billion when the proposal was issued (see FSM Report TLAC3) to $70 billion, according to FRB staff. However, the bulk of these costs will fall on the four GSIBs that have yet to issue sufficient TLAC, with costs now and overall increases in funding costs over time to be particularly problematic for companies that rely on large amounts of retail deposits.
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