Financial Stability Board Outlines New Standards

The Financial Stability Board (FSB) have issued their Total Loss Absorbing Capacity (TLAC) for banks that are globally systemically important.

The board, which coordinates banking regulation across the G20, have placed standards on global systemically important banks (G-SIBs), to ensure that they have the recapitalisation capacity to mitigate any banking failure.

Avoiding any exposure to taxpayers  in the case of bank capitulations, is also one of the main aims of the new standards that have been set.

A minimum requirement for instruments and liabilities should be readily available for a bail-in within resolution at the G-SIBS, the FSB argued.

However, the new standards set will not limit the authorities’ power under resolution laws to expose other liabilities to loss through bail-in, or the use of other resolution tools.

New Requirements for G-SIBS

G-SIBS will now have to meet the TLAC stipulations, while at the same time have to meet the minimum regulatory conditions as set out by the Basel III framework.

They will be required to meet the TLAC proviso of  at least 16% of the resolution group’s risk-weighted assets.

The timeframe for this to be implemented is by January 1 2019, and three years later increasing to 18% of the weighted assets.

Minimum rates of the TLAC must also be the equivalent to at least 6% of the Basel III leverage ratio denominator, also by the beginning of 2019. This must be increased to 6.75%, by 2022.

Those G-SIBS that are headquartered in emerging economies, will operate under different time frame

As they will be required to meet the 16% TLAC target no later than January 1 2025, a gap of six years. The Basel III ratio will have to be met by 2028.

If the corporate debt markets of the emerging economies reach 55% of their GDP over the next five years, the compliance period will be accelerated.

The final FSB TLAC term sheet is to be confirmed by the G20 Meeting in Antalya, Turkey on 15-16 November.

European Banking Federation Response

The European Banking Federation (EBF), have broadly supported the FSB and the TLAC policy.

The federation believe that the targets set for G-SIBS will result in them possessing adequate capital resources in case of bank failure.

Taxpayers should also benefit from the new set of guidelines the EBF said, as they will not be liable for bail outs as experienced in the 2008 financial crash.

Access to deposits and payment services should also be able to continue the group believe as there is insulation from banking collapse.

The EBF also urged the policymakers to gauge carefully the effect of the capital buffers, and to ensure that they have been calibrated in the right way.

A balance is necessary to combine financial stability, without having a too negative affect on economic growth.

Euro Up and Down Against the US Dollar

The Euro has had a relatively chaotic relationship the US dollar since midway through yesterday afternoon, reaching a nadir of just below the 1.073 mark.

Early this morning, the euro rose to peak of 1.076 against the dollar, before plunging back down to 1.073.

Compared to the pound, the Euro slipped from just over 0.715 yesterday morning to 0.710 today.