by Dr. Andrew D. Schmulow and Dr. Patrick McConnell
Thomson Reuters Accelus, (2015), published electronically.
Regulators love acronyms. Each new set of rules creates new acronyms, comprehensible only to the initiated and unintelligible to the general public. This often creates a smokescreen of indecipherable language that confuses everyone but the highly educated or initiated.
This week, a newish acronym appeared in Australia, though it has been used for some time overseas: TLAC. This code does not stand for tender love and care, as some might have previously thought, but the much more ominous Total Loss-Absorbing Capacity.
TLAC adds to the tsunami of acronyms — such as CET1, LCR, HQLA, FSB, LRE and RWA — that flowed from regulations put in place after the GFC (yet another acronym).
TLAC concerns capital, a word that has bankers running for the smelling salts, since more capital usually means less profits and, more painfully, the potential for lower bonuses.
In non-banking terms, TLAC can be seen as the “reading of the will” when, the worthy having expired, those left behind divide up the estate. In this case, think of a regulator as being the executor of the will and a bank as the deceased.
In normal business, a receiver will be appointed to wind up an insolvent corporation. In theory, that is what should happen were a bank to be wound up. But despite their protestations to the contrary, banks are just not normal businesses, especially those that are “Too Big To Fail” (or TBTF in acronym-ese).