The rollout is more or less complete in Europe and North America, while jurisdictions closer to Australia may yet have the biggest impact on the local issuance market according to speakers at the KangaNews Debt Capital Markets Summit 2019.

With TLAC requirements for global systemically important banks (G-SIBs) required to be met by 1 January 2019, the TLAC issuance which has so far crept into the Australian dollar global and domestic markets has been from the jurisdictions most advanced in their regime rollouts, specifically Europe and the US.

French and German banks have been the most active senior-nonpreferred issuers in Australian dollars, principally in EMTN format and mainly targeted at Asian-based investors.

Meanwhile, US regulations have meant that bonds using documentation based on non-US law do not count towards TLAC requirements. Even so, J.P. Morgan has been able to price Australian dollar, TLAC-eligible Kangaroo deals by using documentation which quotes New York governing law.

Jurisdictions around the world have also been implementing requirements for their domestic systemically important banks (D-SIBs). With many of these coming into effect recently or in the near future, global TLAC issuance could rise significantly.

In the Netherlands, minimum requirement for own funds and eligible liabilities (MREL) rules were implemented in November 2018. Pratik Keshav, senior funding manager at Rabobank Australia Branch, told delegates the parent company has begun issuing MREL-eligible paper in earnest in euros, US dollars and yen.

He added: “Australian dollar issuance is possible but before this happens we want a better understanding of the capacity for the asset class with Australian investors. We would want broad demand from the domestic investor base before we bring a senior-nonpreferred deal.”

Meanwhile, steps are being taken towards the initiation of TLAC regimes in Asia. While Japan and China are the only regional jurisdictions with G-SIBs, jurisdictions including Hong Kong and Singapore have moved to implement TLAC-equivalent requirements on the G-SIBs which operate there as well as their own D-SIBs.

DBS Bank’s head of wholesale funding, corporate treasury and finance, Hong Nam Yeoh, told conference delegates that the Singapore regulator has finalised its bail-in framework but has not yet communicated the specifics of any TLAC requirement. It has, however, said that senior debt will not be subject to bail-in.

TLAC implementation in China could cause the biggest ripples through global funding markets, according to ANZ’s Hong Kong-based head of Asia DCM, KJ Kim. This implementation may come sooner rather than later.

“The stated timeline for implementation in China is 2025. However, according to the Financial Stability Board (FSB), if China’s corporate and financial debt-to-GDP ratio reaches 55 per cent implementation will need to begin immediately. The ratio is currently at approximately 50 per cent and it is foreseeable that it will reach the 55 per cent trigger point in the near future,” Kim told delegates.

The scale of issuance that would be required of the Chinese G-SIBs – which has been estimated at anywhere between US$450 billion and an eye-watering US$1 trillion – would likely only be able to be absorbed in part by the Chinese domestic market.

Kim explained that if the local regulator follows the FSB guidelines to impose capital charges or limits on how much TLAC paper domestic banks can buy, they will need to go offshore for a large portion of the requirement. If so, he believes they will need to look at every market around the world.

“They will look to the major G3 currency markets and they are definitely eyeing the Australian dollar market, particularly with TLAC developments unfolding here. If the market does develop for Australian D-SIBs, the Chinese banks will certainly take a look,” Kim said.