EC seeks to harmonise TLAC for European banks

LONDON, Jan 27 (IFR) - An expert group at the European Commission is meeting in Brussels on Wednesday to discuss how it can integrate global loss absorbing rules in Europe in a harmonised way.

The group is discussing how to better align the implementation of the so-called total loss absorbing capacity (TLAC), a global framework, and minimum requirement for own funds and eligible liabilities (MREL), a European framework.

Unlike MREL, TLAC rules, which were finalised at the end of 2015, are non-binding. One of the major concerns has been that implementation would vary greatly between countries.

“I can confirm we are currently working to explore appropriate ways to transpose the FSB’s TLAC standards into European law in a manner that articulates well with existing MREL and capital requirements for banks,” a spokesperson for the European Commission told IFR in an email.

“The Commission has started an internal assessment on a possible way forward and will provide greater clarity on its intended way forward shortly.”

A discussion paper circulated by the group proposes that TLAC and MREL requirements should be integrated with rules set out by the Capital Requirements Regulation, potentially rewriting the rule book for European banks.

One option proposed by the group would ask major banks to meet a Pillar 1 going concern capital requirement of 6% of risk weighted assets and a gone concern Pillar 1 requirement of 12% of RWAs by 2022. This is well in excess of the current 2% set in the Basel 3 framework.

MREL would be transformed into an institution-specific Pillar 2 add-on requirement. (Reporting by Alice Gledhill, editing by Helene Durand and Julian Baker)