Featured Product

    CMF Proposes Rules on Credit Risk-Weighted Assets and Capital Buffers

    January 27, 2020

    CMF is consulting on two new regulations: one regulation covers the methodology for determining credit risk-weighted assets while the other one relates to the assessment of compliance with capital buffers. These regulations are in context of the adoption of Basel III standards by local banks. The consultation on methodology for determining credit risk-weighted assets ends on April 15, 2020 while the one on assessment of compliance with capital buffers ends on March 31, 2020. The new regulations will become effective on December 01, 2020. Additionally, CMF has published regulatory reports evaluating the impact of these proposals, frequently asked questions, and presentations on the mentioned regulatory proposals.

    Consultation on Methodology for Determining Credit Risk-Weighted Assets. In accordance with Article 67 of the General Banking Act, the regulatory proposal presents a standard methodology and principles for the use of internal methodologies to determine credit risk-weighted assets by banks operating in Chile. The current mechanism estimates credit risk-weighted assets using a methodology in the Basel I standard. The current methodology distinguishes only five categories of assets and does not allow the use of internal methodologies or techniques to mitigate exposure by collaterals or qualified guarantors. In contrast, the standardized approach proposed with the Basel III standards is more risk-sensitive, as it has categories that depend on the type of counterparty and different risk factors. The new framework will also allow the use of internal methodologies subject to the fulfillment of minimum requirements. The standard under consultation also proposes the possibility of reducing credit risk-weighted assets by considering the credit risk mitigants such as netting agreements, guarantors, collaterals, financial guarantees, and balance-sheet compensations.

    Consultation on Assessment of Compliance with Capital Buffers. CMF has published a regulatory proposal for the assessment of compliance with capital buffers, in accordance with certain articles of the General Banking Act and the latest agreement of BCBS. According to the regulatory proposal, the capital conservation buffer (CCB) is a fixed amount equivalent to 2.5% of the risk-weighted assets, after excluding mandatory provisions. Although the CCB is of a permanent nature, it is expected to be used when the bank faces the materialization of idiosyncratic or systemic risks, thus avoiding default and credit supply contraction. Meanwhile, the countercyclical buffer (CCyB) is a variable amount ranging from 0% to 2.5% of the net risk-weighted assets after excluding mandatory provisions. The implementation of the regulation considers a four-year transition period. From December 01, 2021, the maximum value of both the conservation buffer and CCyB will be 0.625% each. The threshold will be raised by the same amount in 2022, until reaching full implementation in 2024.

     

    Related Links

    Comment Due Date: April 15, 2020/March 31, 2020

    Effective Date: December 01, 2020

    Keywords: Americas, Chile, Banking, Credit Risk, Risk-Weighted Assets, Capital Buffer, CCyB, Basel III, Standardized Approach, Minimum Requirements, CCB, CMF

    Featured Experts
    Related Articles
    News

    EC to Defer Application of SFDR Standards Till July 2022

    The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.

    July 23, 2021 WebPage Regulatory News
    News

    BoE Consults on Approach to Setting MREL, Publishes Bail-In Guidance

    The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.

    July 22, 2021 WebPage Regulatory News
    News

    EBA Seeks Views on Proportionality Assessment Methodology

    The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.

    July 22, 2021 WebPage Regulatory News
    News

    US Agencies Propose Changes to Call Reports and Instructions

    Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.

    July 22, 2021 WebPage Regulatory News
    News

    PRA Finalizes Rulebook Definition of Higher Paid Material Risk-Taker

    The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.

    July 21, 2021 WebPage Regulatory News
    News

    EBA Examines Asset Encumbrance in Banking Sector

    The European Banking Authority (EBA) published its annual report on asset encumbrance in banking sector.

    July 21, 2021 WebPage Regulatory News
    News

    EBA Publishes Methodological Guide to Mystery Shopping

    The European Banking Authority (EBA) published a methodological guide to mystery shopping.

    July 21, 2021 WebPage Regulatory News
    News

    APRA Issues Update on Capital Reform Policy Settings for Banks

    The Australian Prudential Regulation Authority (APRA) released a letter to authorized deposit-taking institutions to provide an update on key policy settings for the capital framework reforms, which will come into effect from January 01, 2023.

    July 21, 2021 WebPage Regulatory News
    News

    CPMI-IOSCO Assess Continuity Planning of Market Infrastructures

    The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published a report that assesses the business continuity planning activities of financial market infrastructures or FMIs.

    July 21, 2021 WebPage Regulatory News
    News

    ESMA Responds to Proposal Related to Sustainability Standards Board

    The European Securities and Markets Authority (ESMA) has responded to the IFRS consultation on targeted amendments to the IFRS Foundation constitution to accommodate an International Sustainability Standards Board (ISSB) to set IFRS Sustainability Standards.

    July 21, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7283