The FSB TLAC term sheet also has a 6.75% leverage ratio requirement, which is not risk-sensitive. The TLAC leverage ratio requirement is meant to be a backstop against capital underestimation that may arise from risk-based approaches. Based on MAS’ close supervision of banks’ internal models and assessment of capital adequacy (including supervisory CAR), MAS is comfortable that no further leverage ratio requirement is necessary and will not introduce an external TLAC leverage ratio requirement for the local banks. Such an approach will avoid unnecessary complexity and compliance costs, MAS says.
On May 13, the Monetary Authority of Singapore said in a consultation paper that the Financial Stability Board total loss-absorbing capacity (TLAC) term sheet requires a global systemically important bank (GSIB) to maintain TLAC equal to at least 18% of its risk-weighted assets (RWA) at all times.
“MAS recognises that our local bank domestic systemically important banks (DSIBs) are smaller in size and have different risk profiles. As such, MAS proposes a risk-appropriate approach to set external TLAC at 14% of the DSIB’s RWA,” the May 13 consultation paper says.
