U.S. TLAC Rule: Significant Concessions, But Still Very Stringent
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.