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June 12, 2017

SBIF announced that Chile has initiated a project that adapts the Basel III International Standards to the Chilean reality and updates the bank resolution elements. This initiative was presented by the President of Chile, Michelle Bachelete, and the Legislative process of the bill is expected to begin soon. The focus is on strengthening institutional framework of the banking regulator and adopting Basel III Standards.

This bill modifies the General Law of Banks in Chile. It aims to implement a new model of supervision and regulation of the financial market. The bill will also establish a new regulator of banks in the form of a Financial Markets Commission (CMF). The Chilean Finance Minister (Rodrigo Valdés) stressed that this initiative is the result of several months of work with the Central Bank and the SBIF. The new Draft Law increases tier 1 capital requirement from 4.5% to 6.0% of the risk-weighted assets and introduces a countercyclical capital buffer of 2.5%. CMF (with agreement of the Central Bank) is being given the authority to establish additional capital requirements for institutions of systemic importance and these requirements can be up to 3.5% of the risk-weighted assets. It also aims to establish Pillar 2 of Basel III, wherein the Commission may require banks to hold additional capital in cases where the legal requirements are insufficient to cover the specific risks faced by an entity. A transition period will be put in place to meet the new capital requirements. The Draft Law also mentions other modifications related to increase of the State guarantee or term deposits and new requirements for bank managers.

 

Related Link: Notification (in Spanish)

Keywords: Chile, Americas, SBIF, Basel III, Banking, Bank Resolution, CMF

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