CMF Consults on Treatment of State Guarantees in Calculation of RWAs
CMF is consulting on a regulation that would modify the treatment of the State loan guarantees for calculation of risk-weighted assets, or RWAs, by banks. CMF proposes amendments to Chapter 12-1 of the Updated Compilation of Rules for Banks. The amendment will modify the treatment of the amounts guaranteed by the Chilean State, Production Development Corporation (CORFO), and Guarantee Fund for Small Entrepreneurs (FOGAPE). As per the proposed treatment, these amounts would be assigned to Class 2 for the purpose of calculating risk-weighted assets. CMF also published a regulatory report evaluating the impact of the proposal. The consultation period for this regulation closed on July 31, 2020.
As part of the measures adopted by economic authorities to deal with the impact of COVID-19 outbreak, this modification is expected to increase the core capital indicators of a bank, thus improving the conditions for institutions to transfer liquidity to markets. This also considers the strengthening of the State's role through FOGAPE and other support mechanisms. The new treatment is in line with international standards and is especially important for banks that would not have enough room to use the additional provisions as effective equity. On April 20, 2020, CMF issued a circular (No. 2,250) that allowed banks to consider a proportion (15%) of the amount guaranteed by the Chilean State, CORFO, and FOGAPE to cover loans granted by banks as part of the voluntary provisions that make up the effective equity. The current regulatory proposal voids such treatment and these guarantees can be considered without any limits in the calculation of risk-weighted assets. The proposed amendment would be in effect until December 01, 2021.
Related Links (in English and Spanish)
Comment Due Date: July 31, 2020
Keywords: Americas, Chile, Banking, COVID-19, Credit Risk, Basel, Regulatory Capital, Loan Guarantee, FOGAPE, CMF
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Victor Calanog, Ph.D.
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous Article
US Agencies Issue Supplemental Instructions to FFIEC Call ReportsRelated Articles
EBA Sets Out Work Priorities and Deliverables for 2021
EBA published its annual work program for 2021. The work program describes the activities and deliverables for the coming year in the context of the six key strategic areas of work.
PRA Proposes to Amend SS11/13 on Internal Ratings-Based Approaches
PRA is proposing, via the consultation paper CP14/20, to introduce two complementary expectations on the level of mortgage risk-weights in UK for banks applying the internal ratings-based approaches.
ECB Confirms Compliance of €STR with Financial Benchmark Principles
ECB published its statement of compliance with the IOSCO principles for financial benchmarks developed by IOSCO.
OSFI Updates Timelines for Implementation of IFRS 17
OSFI updated the timelines for implementation of IFRS 17 on insurance contracts.
IFRS Consults on Global Approach to Sustainability Reporting
IFRS launched a consultation to assess the demand for global sustainability standards.
EIOPA Sets Out Work Priorities for 2021-2023
EIOPA has set out the work priorities for 2021-2023, taking into account the current market situation in light of the COVID-19 pandemic.
US Agencies Finalize Three Interim Final Rules Issued Amid Pandemic
US Agencies (FDIC, FED, and OCC) finalized three interim final rules that were published in March and April this year to ease the impact of disruptions caused by the COVID-19 pandemic.
US Agencies Finalize Interim Final Rules Issued Amid Pandemic
US Agencies (FDIC, FED, and OCC) finalized two rules, which are either identical or substantially similar to the interim final rules in effect and issued earlier this year.
APRA Proposes to Increase Transparency of Banking Data
APRA announced that it is resuming consultation on the confidentiality of data submitted to APRA by the authorized deposit-taking institutions.
EIOPA Consults on Use of Risk Mitigation Techniques Under Solvency II
EIOPA is consulting on a supervisory statement on the use of risk mitigation techniques by insurance and reinsurance undertakings.
