The Toll TLAC Will Take

Karen Shaw Petrou’s memorandum to the Federal Financial Analytics clients on the toll TLAC will take.

TO: Federal Financial Analytics Clients

FROM: Karen Shaw Petrou

DATE: December 4, 2015

Powerful though the Fed may be, it can’t cure all negative externalities all of the time. FRB Gov. Tarullo is fond of talking about negative feedback loops as he ponders an end to all the harm that big banks can do as they topple, but rules are at least as inter-connected as GSIBs. A case in point: TLAC. U.S. GSIBs aren’t TBTF anymore post-TLAC, but it could well make them riskier and thus more likely to fail – the only difference this time is that there won’t be any taxpayer backstop. The reason: TLAC costs...