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Financial Institution Letter

Final Rule: Total Loss Absorbing Capital (TLAC)

Holdings

O c t o b e r   2 8 ,   2 0 2 0  |  F I L­ 1 0 2 ­ 2 0 2 0    

Summary:

The federal bank regulatory agencies have issued a joint final rule that amends the capital
rule to require advanced approaches banking organizations to deduct from regulatory
capital certain investments in unsecured debt instruments issued by global systemically
important banks (GSIBs) and certain subsidiaries of GSIBs that are issued for the purpose of
meeting minimum long-term debt or TLAC requirements (i.e., covered debt instruments).

A copy of the final rule can be found on the FDIC’s website.

Statement of Applicability to Institutions with Total Assets Under $1 Billion: This Financial
Institution Letter (FIL) is only applicable to advanced approaches banking organizations.

Highlights:

The final rule amends the capital rule to require generally that an advanced approaches
banking organization treat a direct, indirect, or synthetic investment in a covered debt
instrument as if it were an investment in a tier 2 capital instrument, and therefore,
subject the investment to the existing deduction approaches under the capital rule.

The final rule generally requires advanced approaches banking organizations to include
investments in covered debt instruments in the calculation of non-significant
investments in the capital of unconsolidated financial institutions.

The final rule provides that an advanced approaches banking organization that is also a
U.S. GSIB or a U.S. GSIB subsidiary may exclude from a capital deduction the aggregate
amount of investments in covered debt instruments that do not exceed 5 percent of the
 institution’s common equity tier 1 (CET1) capital. To qualify for this exclusion, the covered
debt instruments must be direct or indirect exposures held for 30 business days or less
or synthetic exposures (with no holding limit) that are held in connection with market
making-related activities, identified using criteria from the Volcker Rule. Covered debt
instruments included in this 5 percent exclusion are measured on a gross long basis and
any necessary deductions for instruments identified for this 5 percent exclusion are
made on a gross long basis.

The final rule provides an advanced approaches banking organization that is not a U.S.
GSIB with a similar 5 percent CET1 exclusion for market making activities; however, the
30-business-day holding limit does not apply.

The final rule provides capital treatment that is consistent with the proposed rule and
the Basel Committee’s international standard for TLAC holdings.

The final rule is effective on April 1, 2021.

Attachment:

Final Rule


Distribution:

FDIC-Supervised Institutions

Suggested Routing:

Chief Executive Officer

Chief Financial Officer
Chief Risk Officer

Related Topics

Risk-Based Capital Rules, 12 CFR Part 324

Contacts:

Ben Bosco

Chief, Capital Policy

 (202) 898­6853
 bbosco@fdic.gov

Richard Smith

Capital Markets Policy Analyst

 (202) 898­6931
 rismith@fdic.gov

 regulatorycapital@fdic.gov
 (202) 898­6888

Notes:

Access FDIC Financial Institution Letters (FILs) on the FDIC's website.

Subscribe to receive FILs electronically.

About the FDIC:

The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by the
Congress to maintain stability and public confidence in the nation's financial system. The FDIC
insures deposits; examines and supervises financial institutions for safety, soundness, and
consumer protection; makes large and complex financial institutions resolvable; and manages
receiverships.

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