Today, March 23, 2020, the Federal Reserve issued an interim final rule that revises the definition of “eligible retained income” for purposes of the total loss-absorbing capacity (“TLAC”) buffer requirements that apply to global systemically important banking organizations (“G-SIBs”).  The rule amends the “eligible retained income” definition in the same manner as the federal banking agencies’ interim final rule of March 17, 2020, which, as we summarized previously, revised that definition for purposes of the regulatory capital rules that apply to all U.S. banking organizations.

Similar to the March 17, 2020 interim final rule, today’s interim final rule is intended to incentivize G-SIBs to more freely use their TLAC buffers during stress periods by eliminating a “cliff effect” of the buffers’ limitations on capital distributions and discretionary bonus payments for G-SIBs that have previously distributed all or nearly all of their net income.  The rule will be effective immediately upon publication in the Federal Register.