BoE exec calls for enough GLAC to restore capital level above minimum

It is "not credible" to think that global systemically important banks (G-Sibs) could be dismantled over a weekend without a destabilising disruption to critical functions, Andrew Gracie, the Bank of England's executive director for resolution said during a recent speech in Brussels that was published yesterday.

"The reality of a G-Sib is that its activities cannot be shut down immediately and it will need to be adequately recapitalised to sustain its critical functions," Gracie said, adding banks must have a liability structure that allows them to absorb losses and to restore solvency – known as ‘gone concern loss-absorbing capacity', or GLAC.

At a very minimum, there must be sufficient GLAC to restore minimum capital requirements, according to Gracie.

"For a bank that has undergone resolution to command market confidence, it is likely to need at least as much capital as other banks in the market," he argued. "It would be sensible therefore for G-Sibs to maintain sufficient GLAC to be able at least to restore fully regulatory capital buffers above capital minima, in order to maintain market confidence".