U.S. TLAC Requirements
The FRB has unanimously approved the final version of its proposed standards1 requiring U.S. GSIBs and the IHCs of foreign banks determined by the FRB’s methodology to be GSIBs to hold total loss-absorbing capacity (TLAC) largely in the form of eligible long-term debt (LTD). Covered companies that fall short will be subject to new sanctions on capital distributions and discretionary bonuses regardless of the degree to which capital distributions are otherwise permitted. To ensure that LTD meets the FRB’s expectations for loss-absorbing capacity, the final rule also limits liabilities issued by covered top-tier holding companies and required that this parent company be a “clean” BHC that readily assures liquidity sufficient to ensure orderly resolution under both the U.S. Bankruptcy Code and OLA.