The total loss-absorbing capacity (TLAC) concept aims to facilitate the resolution of globally active banking groups without impairing financial stability or exposing taxpayers to loss. The FSB proposes that, in addition to the existing capital requirements for the going-concern scenario under the Basel III standard, G-SIBs be required to demonstrate sufficient loss-absorbing capacity at all times, corresponding to a Pillar 1 requirement. Subject to calibration once the impact assessment is complete, the TLAC is to be set at 16% to 20% of the capital requirement based on the risk-weighted assets and at 6% of the capital requirement based on the total exposure.
The chart shows the relationship between the TLAC and the capital requirements.
The TLAC concept is scheduled for adoption by the FSB as a minimum standard at the end of 2015, with the new requirements coming into force no earlier than 2019.
(From the annual report 2014)