Major banks are increasingly preparing for a myriad of proposed TLAC rules, or policy-sector (such as the FSB) driven guidelines for Total Loss-Absorbing Capacity. Reuters reported last month proposals were made to the G20 to increase the plans for the buffer for risk weighted assets from 16% in 2019 to 20% in 2020. Such measures are targeted at large systemic banks (TBTF) in order to reduce systemic risks and reduce the costs to society of resolution plans. There is good background on TLAC published by the Dutch National Bank found at http://www.dnb.nl/en/news/news-and-archive/dnbulletin-2014/dnb315049.jsp.
The current word on the street is that TLAC, which will apply to over 50 systemically important banks, will have far reaching impact to banks and their bail-in strategy, including potentially corporate legal structures. Several structural mechanisms can be entertained by banks for bail-in securities, including contractual subordination of bail-in securities, statutory subordination where bail-in securities are determined by statue, and corporate structures where holding companies issue debt which are ranked subordinated to their banking units. These proposals raise complex issues for Europe's legal systems and potentially investor property rights. Banks nonetheless need to continue to manage through a maze of significant structural change as they re-develop their business models in a post financial crisis world.
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