China writes tougher capital rules for banks too big to fail

(Bloomberg) –

Chinese financial regulators plan to impose additional capital requirements on systemically important banks in the country, seeking to reduce risk and preserve the stability of the $ 49 trillion industry.

Banks deemed too big to fail will be classified into five categories and will face a surcharge of between 0.25% and 1.5% on top of the mandatory capital adequacy ratios, the People’s Bank said. China and the China Banking and Insurance Regulatory Commission in a draft rule. Friday.

Lenders will also need to develop detailed plans on how to recover from a crisis, as well as drafting a living will with assignment plans in case they cannot function as a permanent entity.

Chinese authorities this year began to assess systemically important banks by measuring the assets of the country’s 30 largest lenders. Companies will also be rated based on their interconnection with other financial institutions and the complexity of activities such as derivatives and wealth management operations.

While the move is aimed at strengthening the financial strength of China’s largest banks and reducing systemic risks, it could widen the funding gap for some lenders.

Industrial & Commercial Bank of China Ltd., Bank of China Ltd., China Construction Bank Corp. and Agricultural Bank of China Ltd. are all considered to be Global Systemically Important Banks, or G-SIBs. They must find up to 6.5 trillion yuan ($ 990 billion) by 2024 to meet global capital requirements designed to protect the public and financial system against massive bank failures, S&P Global Ratings estimated. last year.

Emerging market G-SIBs must have liabilities and instruments available to ‘bail out’ the equivalent of at least 16% of risk-weighted assets by January 1, 2025, and increase to 18% by 2028 , according to the Financial Stability Council. Banks in developed markets entered the first phase in 2019.

The CBIRC currently requires large public lenders to have a minimum capital adequacy ratio of 11.5%, while smaller competitors require 10.5%.

The story continues

The draft regulation awaits public comments until May 1.

For more articles like this, please visit us at bloomberg.com

Subscribe now to stay ahead with the most trusted source of business news

© 2021 Bloomberg LP