FRM Exam Part II · Solvency, Liquidity and Other Regulation After the Global Financial Crisis

G-SIBs, D-SIBs and TLAC Explained

Updated 11 October 2026 · Fact-checked

G-SIBs are banks whose failure could damage the global financial system. The Basel Committee scores them on indicators across five categories and sorts them into buckets with higher CET1 surcharges. D-SIBs are the domestic equivalent. TLAC requires G-SIBs to hold enough loss-absorbing liabilities so they can be resolved without taxpayer support.

Understand G-SIBs, D-SIBs and TLAC

Some banks are so large or connected that their failure would harm the wider system. Markets know this and assume the state will step in. That assumption is the too-big-to-fail problem. It lowers funding costs for big banks and encourages risk-taking. Post-crisis rules try to make these banks safer and make their failure manageable.

A G-SIB (global systemically important bank) is identified by the Basel Committee using an indicator-based method. Five categories are scored with equal weight: size, interconnectedness, substitutability or financial institution infrastructure, complexity, and cross-jurisdictional activity. Each bank's score is compared with the sample total. The score places the bank in a bucket. Each bucket carries a higher loss absorbency (HLA) surcharge, met with Common Equity Tier 1 (CET1) capital. The surcharge sits on top of the minimum and the capital conservation buffer. The list is updated every year. The empty top bucket is there to discourage banks from growing further in systemic importance.

A D-SIB (domestic systemically important bank) is a bank that matters for its home economy even if it is not global. Basel sets principles, not a fixed scoring formula. National authorities identify D-SIBs and set their surcharges, using size, interconnectedness, substitutability and complexity. Cross-jurisdictional activity is not part of the D-SIB assessment. So G-SIB is a global, formula-based list. D-SIB is a national, principles-based list.

TLAC (total loss-absorbing capacity) is the FSB standard for G-SIBs. It sets a minimum amount of capital and eligible debt that can absorb losses and recapitalise the bank in resolution. Eligible debt is usually long-term, unsecured and subordinated or otherwise structurally junior to operating liabilities, so it can be written down or converted to equity (bail-in). The aim is orderly resolution without public funds. Resolution planning (the so-called living wills) and the FSB Key Attributes support this. They set out how critical functions continue while the bank is restructured.

Key formulas to remember

G-SIB indicator categories: Size, Interconnectedness, Substitutability, Complexity, Cross-jurisdictional activity (each 20% of the score); Five categories, equally weighted. Learn all five. Each category is built from indicators, and the score is a share of the sample total.
Category score: Indicator score = (bank's indicator value ÷ sample total) × 10,000 basis points; Scores are in basis points. The overall score is the weighted average across the categories.
G-SIB surcharge: Required CET1 = minimum + capital conservation buffer + G-SIB surcharge (+ any countercyclical buffer); The surcharge is met entirely with CET1 and rises with the bucket. The Basel framework starts at 1.0% and rises in steps of 0.5%. The highest bucket is left empty.
TLAC minimum (FSB term sheet): Minimum TLAC ≥ 18% of risk-weighted assets and ≥ 6.75% of the Basel III leverage ratio denominator (from 2022); These minimums are separate from the capital buffers, which must be met on top of them. Phase-in began with 16% and 6% in 2019.

How to solve G-SIBs, D-SIBs and TLAC questions

Use this order for any G-SIB, D-SIB or TLAC question. It keeps you from mixing up the three regimes.

1Identify the regime: G-SIB scoring and surcharge, D-SIB national framework, TLAC or resolution.
2For G-SIB questions, list the five categories and check which one the question concerns.
3If a score is given, find its bucket and read off the CET1 surcharge. Then add it to the other requirements.
4For capital stacking, add the minimum, conservation buffer, surcharge and any countercyclical buffer, all in CET1 terms.
5For TLAC, compute the requirement on both bases (RWA and leverage exposure) and apply the higher one.
6Check whether a liability counts as eligible. It must be unsecured, long-term and subordinated or structurally junior.
7Interpret the result: compare it with the holdings, state the shortfall or surplus, and say what it means for resolution.

Quickest way: Two-test TLAC and bucket check

When to use it: Use it when a question gives balance sheet figures and asks if a bank meets TLAC or what capital it needs.

Write the two TLAC tests: 18% of RWA and 6.75% of leverage exposure.
Compute both numbers and keep the larger one. That is the binding minimum.
Count only eligible instruments: regulatory capital plus qualifying long-term unsecured debt.
For surcharges, add the bucket surcharge to the CET1 stack and move on.
Eliminate options that treat deposits, short-term debt or secured funding as TLAC-eligible.

Common mistakes in G-SIBs, D-SIBs and TLAC

Treating D-SIB identification as a Basel scoring formula.
Students carry the G-SIB method over because the names look alike.
Fix: Remember that Basel gives D-SIB principles only. National authorities choose the method and the surcharge.
Listing cross-jurisdictional activity as a D-SIB criterion.
It is one of the five G-SIB categories, so it feels standard.
Fix: The D-SIB assessment focuses on domestic impact. Cross-jurisdictional activity is specific to G-SIBs.
Saying the G-SIB surcharge can be met with Tier 2 or AT1 capital.
Students think of total capital rather than loss absorbency at going-concern level.
Fix: The surcharge must be met with CET1.
Applying only one TLAC test.
The risk-weighted figure is more familiar, so students stop there.
Fix: Compute both the RWA and leverage-based minimums, and use the higher requirement.
Counting insured deposits or short-term liabilities as TLAC.
All liabilities seem able to absorb losses.
Fix: Eligible instruments must be long-term, unsecured and bail-inable. Operating liabilities that critical functions rely on are excluded.
Thinking TLAC replaces regulatory capital buffers.
Both are sized as percentages of RWA.
Fix: TLAC is a separate minimum. Capital held to meet buffers cannot be double counted against it.

Worked examples

Example 1

A G-SIB has risk-weighted assets of USD 400 billion and a leverage ratio exposure measure of USD 1,200 billion. Using the fully phased-in TLAC minimums (18% of RWA and 6.75% of leverage exposure), what is the binding minimum TLAC?

Show the solution

RWA test: 18% × 400 = USD 72 billion.
Leverage test: 6.75% × 1,200 = USD 81 billion.
The bank must satisfy both, so the binding minimum is the larger figure.
USD 81 billion is greater than USD 72 billion.

Answer: Binding minimum TLAC is USD 81 billion, set by the leverage test.

Example 2

A bank must hold a CET1 minimum of 4.5%, a conservation buffer of 2.5% and a G-SIB surcharge of 1.5% of RWA. Its countercyclical buffer is zero. It has RWA of USD 500 billion and CET1 of USD 45 billion. What is its CET1 requirement and its surplus or shortfall?

Show the solution

Total CET1 requirement = 4.5% + 2.5% + 1.5% = 8.5%.
In dollars: 8.5% × 500 = USD 42.5 billion.
Actual CET1 = USD 45 billion, which is 9.0% of RWA.
Surplus = 45 − 42.5 = USD 2.5 billion.

Answer: The requirement is 8.5% of RWA (USD 42.5 billion). The bank has a surplus of USD 2.5 billion, or 0.5% of RWA.

Exam tips

Memorise the five G-SIB categories and be ready to match an indicator to its category.
Questions often test who sets the rules: Basel for G-SIB scoring, national authorities for D-SIBs, and the FSB for TLAC.
When stacking CET1 requirements, add every buffer the question mentions and check units (% of RWA).
For TLAC, compute both the RWA and leverage tests before choosing an answer.
Watch the wording for eligibility. Short-term, secured or insured liabilities are classic distractors.

Practice questions from Solvency, Liquidity and Other Regulation After the Global Financial Crisis

G-SIBs, D-SIBs and TLAC: frequently asked questions

What is the difference between a G-SIB and a D-SIB?

A G-SIB is systemic at the global level and is identified using the Basel indicator-based method. A D-SIB is systemic within its home economy and is identified by national authorities under Basel principles. G-SIBs also face TLAC, and the D-SIB surcharge is set nationally.

What are the G-SIB capital surcharge indicators?

There are five categories: size, interconnectedness, substitutability or financial institution infrastructure, complexity, and cross-jurisdictional activity. Each carries equal weight in the score. The score decides the bucket and so the CET1 surcharge.

What is TLAC in simple terms?

TLAC is the amount of capital and eligible long-term debt a G-SIB must hold so losses can be absorbed and the bank recapitalised in resolution. It lets authorities bail in creditors instead of using taxpayer money.

What is a living will?

It is a resolution plan that explains how a large bank could be wound down or restructured in an orderly way. It identifies critical functions and how to keep them running. Authorities use it to remove obstacles to resolution in advance.