Federal Reserve Proposes Total Loss Absorbing Capacity Requirement

4 November 2015
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Key takeaways

  • On October 30, 2015, the Federal Reserve Board (the “FRB”) issued a proposed rule (the “Proposal”) designed to improve the resolvability and resiliency of large, interconnected U.S. bank holding companies (“BHCs”) and U.S. operations of large, interconnected foreign banking organizations (“FBOs”). The Proposal would:
    • require U.S. top-tier BHCs identified by the FRB as global systemically important banking organizations (“Covered BHCs”) to maintain a minimum amount of total loss absorbing capacity (“TLAC”);
    • require top-tier U.S. intermediate holding companies (“IHCs”) of foreign global systemically important banking organizations (“Covered IHCs”) to maintain a minimum amount of TLAC;
    • establish a “clean holding company” requirement by placing restrictions on the liabilities that covered BHCs and covered IHCs could incur; and
    • require state member banks, BHCs and savings and loan holding companies currently subject to the FRB’s regulatory capital rules (i.e., over $1 billion of total consolidated assets) and IHCs formed pursuant to the FRB’s enhanced prudential standards rule to deduct from regulatory capital investments in unsecured debt issued by covered BHCs.