Total Loss-Absorbing Capacity (TLAC): making bail-in feasible and credible instead of bail-out

Summary

The new “loss-absorbing capacity” concept and the bail-in tool are the cornerstones of the new resolution regime, in which the shareholders and creditors should shoulder much of the recapitalisation burden. Banks must have enough liabilities with loss-absorbing capacity (TLAC). The FSB envisages that the TLAC should consist of instruments that can be legally, feasibly, effectively and operationally written down or converted into equity in case of resolution, in an amount that doubles the capital and leverage requirements (16% of RWA and 6% of leverage assets). Thus capital instruments and long term unsecured debt are broadly the instruments that may compose it.

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