China toughens rules for its globally systemically important banks

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FILE PHOTO: People wearing face masks walk past the headquarters of PBOC

BEIJING -China published rules on Friday that require its globally systemically important banks to beef up capacity to absorb losses to head off financial instability.

Those banks must meet specific total loss-absorbing capacity (TLAC) targets from 2025, the People’s Bank of China (PBOC), the China Banking and Insurance Regulatory Commission (CBIRC) and the Ministry of Finance said in a joint statement.

China’s top four lenders – Industrial and Commercial Bank of China, Agricultural Bank of China Ltd, Bank of China and China Construction Bank – are designated as global systemically important banks by Chinese regulators and the Switzerland-based Financial Stability Board (FSB).

The move is aimed at improving the risk-disposal mechanism at big Chinese lenders, controlling irrational business expansion and curbing the accumulation of systemic risks, the regulators said.

The new rules require that the four banks in China hold a TLAC amount of at least 16% of risk-weighted assets starting Jan 1, 2025, and the bar will be further raised to 18% from Jan. 1, 2028.

The four systemically important lenders are also required to meet the leverage ratio requirement of 6% in early 2025, and reach 6.75% in early 2028.

The regulatory requirements have been put in place in response to a global standard of TLAC requirements for systemically important banks, to avoid any future bailouts that would mobilize too much of public resources, and to effectively resolve the problem of the “too big to fail”, Chinese regulators said.

With follow-up policies in the works, “China’s global systemically important banks can meet those requirements under relatively low pressure … and the (requirement) will not effect their capability in credit supply,” the regulators said.

(Reporting by Cheng Leng and Ryan Woo; editing by John Stonestreet and Susan Fenton)