TLAC – Total Loss Absorbency Capacity.
Remember when those banks failed? Well, apparently they’ve figured out that it’s really hard work to maneuver politically. Not only are politicians expensive, it’s bad publicity man.
Back in 2009 the G20 was hosted in Pittsburgh, Pennsylvania. The Financial Stability Board (FSB) was asked to develop a plan for ending “Too Big to Fail” banking. Don’t get excited, there isn’t that much history here. Effectively, they sat on their asses until the crisis in Cyprus hit.
You read that correctly. For three years, a bunch of bureaucrats sat around collecting a paycheck with nothing to show for it. Cyprus starts looting depositor’s bank accounts, and the light bulb goes off.
That means some (multiple?) asshole(s) probably got a promotion and corner office for going to the 2009 G20 and doing nothing.
I got gassed for going to the 2009 G20 Summit.
Let’s Go Looting!
TLAC gives banks the ability to seize uninsured assets. In the US, that means anyone with more than $250,000 won’t own their money. Effectively, TLAC rigs it so banks have the power to steal.
The Key Attributes describe the powers and tools that authorities should have to achieve this objective. These include the bail-in power, i.e., the power to write down and convert into equity all or parts of the firm’s unsecured and uninsured liabilities of the firm under resolution or any successor in a manner that respects the creditor hierarchy and to the extent necessary to absorb the losses. Hence, the resolution strategies that are being developed for G-SIBs provide for a recapitalisation by a way of a bail-in
Effectively, anything not FDIC insured is treated like any other investment in a bank and may be turned into fiat dollars to pay their losses. Converted is the key word. Keeping Grandma’s heirlooms in a safety deposit box? Bank holding the title/deed of your Bugatti Veyron?
TLAC Rigs the Game, too
As the leaders of the worlds’ governments suit dummies leave Brisbane its speculated that each country will introduce some form of the FSB’s TLAC resolution. Just this, in itself, inspires me to grab my torch and pitchfork.
The implications to private sector banking are what scare me. If you’re a high net-worth individual Uncle Sam just made government savings bonds the safest investment in town. Albeit, there’s a gun being held to somebody’s head. Probably ours.
Do you think this is a royally stupid idea? Comment below!
Images from the author, David Bostock and Shutterstock.