Global banking regulators have finalized a component of the capital rules that aims to prevent turmoil at a major global bank from spreading throughout the global financial system.
The Basel Committee on Banking Supervision published the final standard on total loss-absorbing capacity (TLAC) instruments, which is designed to limit contagion within the financial system if a global systemically important bank (G-SIB) runs into financial trouble and has to be shuttered.
The standards introduce minimum TLAC requirements for global systemically important banks, and establishes how regulators should treat TLAC instruments at both G-SIBs and non-G-SIBs. The standard also reflects changes to the Basel III capital adequacy regime to specify how G-SIBs must account for the TLAC requirement when calculating their regulatory capital buffers.
The new standard will generally take effect on Jan. 1, 2019, which is also when the TLAC requirements are to be implemented.