Kroll Bond Rating Agency Releases Research Report “TLAC: Are We Bidding Farewell to Too-Big-To-Fail?”

Kroll Bond Rating Agency (KBRA) releases research report entitled “TLAC: Are We Bidding Farewell to Too-Big-to-Fail?” The report makes the following points:

• Global financial regulators have recently announced proposals for totalloss-absorbing capacity (TLAC) securities designed, when combined with other regulatory initiatives, to ensure that taxpayers do not assume the cost of future large bank failures. The proposal is just a suggestion at this stage and has not been adopted by any of the nations represented on the Financial Stability Board (FSB).
• While the suggested TLAC proposals are viewed by some observers as a credible alternative to government support, implementation will likely be challenging because of political issues and real world concerns which are at the heart of Too-Big-To-Fail (TBTF) such as over-the-counter (OTC) derivatives and counterparty risk.
• KBRA believes that, if adopted, the cost for applicable banks to comply with the new requirements will be substantial, particularly given that TLAC must be comprised of at least 33% long-term debt and this debt will carry terms that may be unattractive to traditional bond investors.
• Though the FSB hopes to encourage an equitable and standardized approach across international borders, overall the standards will vary across countries because there remains a basic lack of coordination among the industrial nations when it comes to prudential supervision.
• KBRA believes that while the regulators are taking steps in the right direction, and that TLAC will aid in addressing the TBTF dilemma, it is unlikely that the problem of how to liquidate insolvent global systemically important banks (G-SIBs) will be solved completely at this juncture.

To view the report, please use the following link: www.krollbondratings.com/show_report/1986

About Kroll Bond Rating Agency

KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).