Resolution of banking crises: what are the loss absorbency requirements in Europe and the United States?

Published on 24 May 2024

Stabilité financière

Bulletin No. 252, article 2. Europe and the United States (US) have strengthened their capacity to cope with banking crises since the 2008 global financial crisis. The authorities have set up a method for managing bank failures, known as resolution, that safeguards financial stability and protects depositors. Resolution makes it possible to maintain the activities of a failing bank or transfer them to an acquiring entity, with financing provided through contributions from shareholders and creditors rather than taxpayers.

To this end, the authorities require significant banks to issue capital and debt instruments capable of absorbing losses on financial markets, in compliance with the international standard on total loss absorbing capacity (TLAC). This article compares loss absorbing capacity requirements in Europe and the United States, and finds European standards to be more stringent than those in the US.

Updated on 24 May 2024