Fed Revises TLAC Rule to Support Lending

The Federal Reserve Board today issued an interim final rule amending the treatment of the total loss absorbing capacity, or TLAC, that the eight U.S. global systemically important banks and designated foreign banks with U.S. operations are required to hold. The rule is being issued to align with other regulatory actions encouraging banks to use their capital and liquidity buffers to support the economy during the coronavirus pandemic.

Under the interim final rule, the definition of eligible retained income in the TLAC rule is revised to be a covered company’s net income for the four preceding calendar quarters, net of any distributions and associated tax effects not already reflected in net income, or the average of a covered company’s net income over the preceding four quarters—whichever is greater.

TLAC is intended to ensure that GSIBs have a minimum level of long-term debt instruments that can be called upon should the company fail and need to be wound down rapidly. All developed-country GSIBs met the 2019 TLAC minimum, according to a Financial Stability Board report issued last year.