Regulatory Alerts2016-11-21
TLAC Holding Standards
The Saudi Arabian Monetary Agency issued the TLAC Holding Standards to implement international loss-absorption requirements for Global Systemically Important Banks and domestic financial institutions. The directive mandates that banks deduct qualifying TLAC instrument holdings from their Tier 2 regulatory capital, applying a standard ten percent threshold with an optional five percent gross long basis allowance and specific rules for pari passu instruments. These prudential capital treatment rules apply to both G-SIBs and non-G-SIBs, requiring adjusted regulatory capital buffer calculations, and take effect on 1 January 2019.
# Saudi Arabian Monetary Agency
## BANKING CONTROL
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**From**: Saudi Arabian Monetary Agency
**To**: All Domestic Banks
**Attention**: Managing Directors, Chief Executive Officers and General Managers
**Subject**: TLAC Holdings Standard
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In November 2015, the Financial Stability Board (FSB) published an international standard for Global Systemically Important Banks (G-SIBs) on loss-absorption and recapitalisation capacity in a bank’s resolution. This standard was developed in consultation with the Basel Committee on Banking Supervision in response to a call from the G20 Leaders. The standard comprises a set of principles and a Term Sheet that implements these principles by setting a minimum requirement for Total Loss-Absorbing Capacity (TLAC) instruments.
The TLAC Holdings Standard deals with the regulatory capital treatment of banks' investments in instruments that comprise Total Loss-Absorbing Capacity (TLAC) for Global Systemically Important Banks (G-SIBs). The standard aims to reduce the risk of contagion within the financial system should a G-SIB enters into resolution. It applies to both G-SIBs and non-G-SIBs along with specifying how G-SIBs must take account of the TLAC requirement when calculating their regulatory capital buffers. The main elements of the prudential treatment are as follows:
- **Tier 2 deduction**: banks (both G-SIBs and non-G-SIBs) must deduct their holdings of TLAC instruments issued by other G-SIBs that do not otherwise qualify as regulatory capital from their own Tier 2 capital.
- **Threshold below which no deduction is required**: TLAC holdings should be included within the existing 10% threshold that applies to holdings of regulatory capital instruments. There is an additional 5% threshold that may be used for non-regulatory capital TLAC holdings being measured on a gross long basis.
- **Instruments ranking pari passu with subordinated forms of TLAC must also be deducted** subject to proportionate deduction approach.
The Banks should access the BCBS document from BIS website [www.bis.org](http://www.bis.org). These rules are applicable from 1 January 2019 as specified in the Basel document.
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**Thamer AlEssa**
Director General of Banking Control
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P.O. Box 2992 - Riyadh-11169, Saudi Arabia - Tel : 011-463 3000 - Telex 404390 SJ - Fax : 011-463 2090
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**November 2016**
**الرقم**: 381000019428
**التاريخ**: 1438/02/20
**المرفقات**:
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