The Bank for International Settlements’ Financial Stability Institute (FSI) published an FSI Insights paper reviewing how authorities use loss-absorbing capacity (LAC) requirements to support the resolvability of systemic banks that are not global systemically important banks (G-SIBs). The paper highlights that, unlike the Financial Stability Board’s Total Loss-absorbing Capacity (TLAC) Standard for G-SIBs, there is no comparable international alignment for funding the resolution of other systemic banks, and jurisdictions have adopted materially different approaches to scope, calibration and eligible instruments. Across six jurisdictions (Australia, Canada, the European banking union, Hong Kong SAR, South Africa and the United Kingdom), LAC requirements are consistently framed by systemic considerations but implemented either through advance systemic designation or through resolution planning. Calibration tends to follow either a uniform, capital-framework-based approach for a defined systemic set (eg Australia’s 4.5 percentage point increase in domestic systemically important bank capital requirements; Canada’s standardised TLAC requirement of 21.5% of risk-weighted assets and 6.75% leverage, plus buffers) or a bank-specific approach linked to preferred resolution strategy and resolvability assessments (eg MREL under the Single Resolution Board and the Bank of England; Hong Kong’s application to locally incorporated banks above a HKD 300 billion planning assumption threshold). The paper flags trade-offs between tailoring and simplicity, and between broad scope and reliance on instrument types, noting that minimum long-term debt requirements feature in some frameworks (eg Hong Kong SAR and South Africa, with South Africa also introducing statutory “Flac” instruments and deferring implementation to 1 January 2026 with a six-year phase-in), while other regimes permit broader instrument sets but manage subordination and “no creditor worse off” risks in different ways.
Bank for International Settlements - Financial Stability Institute 2025-11-06
Bank for International Settlements Financial Stability Institute analyses loss-absorbing capacity requirements for resolving systemic banks beyond G-SIBs
The Bank for International Settlements’ Financial Stability Institute published an FSI Insights paper on how authorities use loss-absorbing capacity requirements to support the resolvability of systemic banks that are not global systemically important banks, highlighting the lack of an internationally aligned standard and materially different jurisdictional approaches. The paper compares frameworks in six jurisdictions, contrasting uniform capital-based and bank-specific calibration methods, and underscores trade-offs between tailoring and simplicity, as well as between broad scope and reliance on specific instrument types, including minimum long-term debt and statutory “Flac” instruments.