Regulatory Alerts2016-11-21
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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
From: Saudi Arabian Monetary Agency
To: All Domestic Banks
Attention: Managing Directors, Chief Executive Officers and General Managers
Subject: TLAC Holdings Standard
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. These rules are applicable from 1 January 2019 as specified in the Basel document.
Thamer AlEssa
Director General of Banking Control
P.O. Box 2992 - Riyadh-11169, Saudi Arabia - Tel : 011-463 3000 - Telex 404390 SJ - Fax : 011-463 2090
November 2016
الرقم: 381000019428
التاريخ: 1438/02/20
المرفقات:
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