Banking Agencies Finalize Rule on TLAC Deduction Framework

3 November 2020
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Key takeaways:
  • On October 20, 2020, the Federal Reserve Board (the “FRB”), the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency (the “Agencies”) modified the framework for the capital treatment of advanced approaches banking organizations’ investments in unsecured debt instruments—including debt instruments that qualify as total loss absorbing capacity (“TLAC”)—issued by non-U.S. and U.S. global systemically important banking organizations (“GSIBs”), including U.S. intermediate holding companies of non-U.S. GSIBs.
  • The revised framework generally requires deductions from capital for direct, indirect, and synthetic exposures of an advanced approaches banking organization to certain unsecured debt instruments, subject to exclusions, such as an exclusion for market making-related activities.
  • The Agencies also adopted changes to related regulatory reporting forms and made technical revisions to the FRB’s final rule on TLAC.