PrefBlog

Global bank standards look like they may be meaningful:

The world’s largest banks will have to build up their loss-absorbing liability buffers to see them through a crisis, as regulators tackle too-big-to-fail lenders six years after the collapse of Lehman Brothers Holdings Inc.

The Financial Stability Board, led by Bank of England Governor Mark Carney, said today that the biggest banks may be required to have total loss absorbing capacity equivalent to as much as a quarter of their assets weighted for risk, with national regulators able to impose still tougher standards. The FSB is seeking comment on the rule, known as TLAC, which would apply at the earliest in 2019.
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The TLAC rules would apply to the FSB’s register of global systemically important banks. The latest list, published last week, contains 30 banks, with HSBC Holdings Plc (HSBA) and JPMorgan Chase & Co. (JPM) identified as the most significant.
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In addition to the rule measured against risk-weighted assets, banks will also need to have TLAC equivalent to 6 percent of their total assets. This number could still rise as it linked to a parallel set of international talks on bank capital rules.
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Banks would also face curbs on their ability to count debt they sell to each other toward the TLAC requirement to “reduce the risk of contagion” if one firm collapses.

These curbs would work by targeting banks whose purchases of shares and TLAC-eligible debt from another globally systemic lender exceed certain levels. In such instances, the purchasing bank would be forced to write down the size of its own buffer of TLAC eligible securities.

I don’t know what the “certain levels” in the last paragraph is all about – banks should be taking a 100% hit to capital for any loss-absorbing capital of other banks they hold. That seems obvious to me.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 12bp, FixedResets gaining 8bp and DeemedRetractibles up 9bp. Volatility was average. Volume was low.

This entry was posted on Monday, November 10th, 2014 at 8:18 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.