Prevent banks from being "big to fail" Chinese version of the regulatory framework will be released
Our reporter Yao Jin
In order to effectively solve the problem of "big to fail", my country's global systemically important banks ushered in the Chinese version of the regulatory framework for total loss absorbing capacity.
Recently, the People’s Bank of China, in conjunction with the China Banking and Insurance Regulatory Commission, drafted the “Administrative Measures for the Total Loss Absorption Capacity of Global Systemically Important Banks (Draft for Comment)” (hereinafter referred to as the “Measures”) to solicit public opinions in order to prevent systemic risks and improve my country's banking risk disposal mechanism ensures that when global systemically important banks enter the disposal stage, they have sufficient loss absorption and capital restructuring capabilities.
The so-called total loss absorbing capacity refers to the total amount of capital and debt instruments that can absorb losses through write-down or conversion into common stock when the global systemically important banks enter the disposal stage.
Global systemically important banks have the characteristics of large asset scale, high business complexity, strong correlation, high degree of international activity, and strong irreplaceability. Their loss absorption and risk resistance capabilities are related to the overall financial stability.
After the 2008 international financial crisis, preventing "big to fail" has become an important part of reflecting on the lessons of the crisis and improving the financial supervision system.
The leaders of the Group of Twenty (G20) approved the "Global Systemically Important Banks Total Loss Absorbing Capacity Clause" (TLAC Clause) submitted by the Financial Stability Board (FSB) in November 2015, which formally clarified the total loss absorbing capacity International unified standards.
In recent years, the People’s Bank of China and the China Banking and Insurance Regulatory Commission have conducted in-depth studies on international rules, strengthened communication with international organizations such as the Financial Stability Board, and drafted the “Measures” in light of my country’s actual conditions. Make clear requirements for composition, supervision and inspection, and information disclosure.
The promulgation of the "Measures" is conducive to China's global systemically important banks to formulate early plans and adopt comprehensive measures to meet the total loss absorption capacity requirements. In the long run, the implementation of total loss absorption capacity management will further improve the risk handling mechanism of China's commercial banks. Improving the risk resistance of large commercial banks, strengthening market constraints, and enhancing the robustness of the financial system are of positive significance. They will help expand the types of active liabilities of commercial banks, increase the proportion of direct financing in China, and promote the development of multi-level capital markets." The Measures Said in the drafting instructions.
Currently, the Chinese banks recognized by the Financial Stability Board as global systemically important banks include Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, and Construction Bank.
The TLAC clause requires global systemically important banks to hold more debt instruments with subordinated attributes that can absorb losses through write-downs or share conversions in addition to regulatory capital, so as to prepare a thicker buffer against risks.
my country's global systemically important banks must meet TLAC requirements in stages starting from 2025 at the latest.
Zhou Maohua, an analyst at the Financial Markets Department of Everbright Bank, believes that in the short term, large domestic banks may face certain pressure to supplement capital, and the hard-constrained supervision of capital will restrict the expansion of bank credit assets to a certain extent.
At present, the overall TLAC compliance capital gap of large domestic banks is not large (the gap is roughly estimated to be between 2.0% and 4.0%), and there is more than 4 years of transition time before 2025. The major domestic banks can fully accumulate internal profits and increase fixed income. Convertible bonds, preferred stocks and regulatory-approved TLAC debt financing instruments will be diversified.
“In the medium and long term, strengthening the TLAC capital constraints of large banks will improve the risk management mechanism of my country’s banking system, enhance the banks’ ability to cope with the future complex operating environment, and consolidate the bottom line to prevent systemic risks. More importantly, it can guide large banks to improve internal management The degree of refinement, balance profitability, scale and quality, stable operation, and promote the transformation of the bank's business philosophy and methods." Zhou Maohua said.