COMMENT LETTER RECOMMENDS TARGETED RECALIBRATION OF INTERNAL TLAC REQUIREMENTS

The following information was released by the Institute of International Finance:

The Institute of International Finance (IIF), together with other leading financial trade associations, submitted a joint comment letter to the Federal Reserve recommending targeted recalibration of internal total loss-absorbing capacity (TLAC) requirements for U.S. intermediate holding companies (IHCs) of global systemically important foreign banking organizations.

Joined by the American Bankers Association, the Institute of International Bankers, Securities Industry and Financial Markets Association, the U.S. Chamber of Commerce, and other financial trade associations, the letter recommends recalibrating certain internal TLAC requirements to better reflect firms risk profiles and resolution strategies while preserving the Federal Reserves objectives for orderly resolution and financial stability.

Specifically, the trade associations recommend reducing the required amount of internal TLAC for non-resolution entity IHCs and eliminating the separate requirement that a fixed portion of internal TLAC be issued as long-term debt. Instead, firms would be permitted greater flexibility to satisfy internal TLAC requirements through an appropriate combination of eligible capital, eligible long-term debt, and other qualifying internal instruments. The trade associations noted that review of other aspects of the TLAC and LTD framework is also warranted.

Requirements that are excessive or that require unnecessary pre-positioning of resources can reduce reflexibility across the group, trap capital and liquidity where they may not be needed, and ultimately weaken rather than strengthen financial stability, the trade associations wrote.

According to the letter, these targeted updates would better align the framework with the smaller systemic footprint of many foreign bank IHCs, reduce unnecessary capital and liquidity fragmentation within global banking organizations, and support more effective cross-border resolution planning.