The new TLAC framework  The agreement on total-loss-absorbing-capacity, which was published on 9th November and endorsed by the G20 leaders, is an example of cooperation at global level towards ending the too-big-to-fail problem. 2  BIS central bankers’ speeches  This new TLAC standard guarantees that global-systemically-important-banks (GSIBs) will have a sufficient (and well distributed) amount of loss absorbing capacity to ensure the continuity of their critical functions at the point of resolution, avoiding the use of public funds. As such, it will contribute to the credibility of bail-in as an effective resolution tool. The TLAC requirement establishes that a banking group will have to issue (and maintain) a minimum amount of capital and debt liabilities to absorb losses first in case of resolution. The minimum external TLAC requirement would be placed at each “resolution entity” within the group (that is, the legal entity where resolution actions would take place). G-SIBs must comply with the TLAC minimum standard from 1st January 2019, subject to a phase-in. This minimum requirement will be calculated as the higher of 16 % of the risk weighted assets associated to the consolidated balance sheet of the resolution group and 6% of the denominator of the Basel III leverage ratio. As of 1st January 2022, these minimum requirements will rise up to 18 % and 6.75 % respectively. The TLAC will be required alongside minimum Basel III capital requirements, and the extra capital buffers (systemic, conservation and countercyclical) will sit on top of the TLAC risk-weighted metric.

Under a Single Point of Entry strategy, resolution actions will be taken in a single legal entity that is basically the parent company of the group, which will have to hold sufficient external TLAC. Additionally, a certain amount of loss-absorbing capacity should be pre-positioned in all material subsidiaries. This would ensure that losses are up-streamed to the resolution entity, thus avoiding putting the material subsidiary into resolution. By contrast, under a Multiple Point of Entry strategy, the application of resolution tools to different parts of the group is allowed under the assumption of limited interconnections between them. Therefore, in this model, loss-absorption capacity is primarily located in each resolution entity (subsidiaries and the parent company). This is the resolution model chosen by the global Spanish banks as it is a better fit with their business model. As I said, one of the most complex issues in the design of the TLAC standard was to find the correct balance between taking into account the particularities of each resolution strategy and ensuring consistent treatment between them. In this respect, the Bank of Spain welcomes the inclusion of certain elements that go in the correct direction towards achieving regulatory consistency between resolution strategies. Let me stress, when mentioning  BIS central bankers’ speeches  3  consistency, that it is important that different jurisdictions also strive to achieve this objective when introducing the TLAC standard into their regulations. Crisis Management Groups (CMGs) will also play a crucial role in ensuring consistency.