CBIRC Revises Guidance on Capital Instrument Innovation of Banks
CBIRC revised guidance on the "Capital Instrument Innovation" of commercial banks, with immediate effect. The revised guidance covers the basic principles for commercial banks to issue capital instruments, the criteria for determining qualified capital instruments, and the working mechanism for commercial banks to issue capital instruments. One of the revisions concerns further clarification regarding the sequence of loss absorption of various capital instruments. The amendments are in line with Basel III and the international practices.
The former China Banking Regulatory Commission (CBRC) issued, in 2012, the "Measures for the Capital Management of Commercial Banks (for Trial Implementation)" and the "Guiding Opinions on the Innovation of Capital Tools of Commercial Banks" (the former "Guiding Opinions" ) to issue capital for commercial banks in China. Since then, commercial banks have successively introduced new capital instruments such as secondary capital bonds, preferred stocks, and non-fixed-term capital bonds (that is, perpetual bonds). With the increasing variety of capital instruments, the identification criteria for qualified capital instruments specified in the original Guiding Opinions need to be adjusted and refined. Earlier this year, the Ministry of Finance issued supporting rules such as the “Provisions on Perpetual Debt-related Accounting Treatment,” which also laid an important policy foundation for this revision. CBIRC has revised this guidance in response to these changes and also published the questions and answers (Q&A) to help understand the revisions.
The amendments to the guidance are to:
- Adjust capital instruments trigger event name to more accurately reflect the meaning of the triggering event
- Adjust the other tier 1 capital trigger conditions and set a different trigger events to other tier 1 capital in accordance with the accounting classification
- Specify the order of loss absorption of capital instruments (All capital instruments of the same level should absorb losses at the same time and capital instruments of different levels should absorb losses in sequence.)
- Specify that write-downs should be permanent write-downs
- Clarify the relevant requirements for the issuance of capital instruments by commercial banks, including attracting diversified market participants to participate in investment through market-based pricing and ensuring the orderly connection of issuance and redemption of capital instruments
Related Links
- Notification
- Guidance (in Chinese)
- Q&A (in Chinese)
Keywords: Asia Pacific, China, Banking, Regulatory Capital, Tier 1 Capital, Loss Absorbing Capacity, Basel III, CBIRC
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.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
SRB Launches Q&A Process for Resolution ReportingRelated Articles
PRA and FPC Finalize Changes to Leverage Ratio Framework in UK
The Prudential Regulation Authority (PRA) published the final policy statement PS21/21 on the leverage ratio framework in the UK. PS21/21, which sets out the final policy of both the Financial Policy Committee (FPC) and PRA
CFPB Proposes Rule on Small Business Lending Data Collection
The Consumer Financial Protection Bureau (CFPB) proposed to amend Regulation B to implement changes to the Equal Credit Opportunity Act (ECOA) under Section 1071 of the Dodd-Frank Act.
PRA Decides to Maintain O-SII Buffers for Another Year
The Prudential Regulation Authority (PRA) decided to maintain, at the 2019 levels, the buffer rates for the Other Systemically Important Institutions (O-SII) for another year, with no new rates to be set until December 2023.
FSB Report Assesses Implementation of Recommendations on Stablecoins
The Financial Stability Board (FSB) published a progress report on implementation of its high-level recommendations for the regulation, supervision, and oversight of global stablecoin arrangements.
APRA Updates Loan Serviceability Expectations for Home Lending
In a letter to the authorized deposit taking institutions, the Australian Prudential Regulation Authority (APRA) announced an increase in the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications.
CPMI and IOSCO Consult on Guidance on Stablecoin Arrangements
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) are consulting on the preliminary guidance that clarifies that stablecoin arrangements should observe international standards for payment, clearing, and settlement systems.
EBA and EIOPA Set Out Work Priorities for 2022
The European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA) have set out their respective work priorities for 2022.
MFSA Issues Reporting Updates and Guidance for Banks
The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0, in addition to the reporting module on leverage under the common reporting (COREP) framework.
EC Publishes Decision on List of Equivalent Third Countries Under CRR
The European Commission (EC) published the Implementing Decision 2021/1753 on the equivalence of supervisory and regulatory requirements of certain third countries and territories for the purposes of the treatment of exposures, in accordance with the Capital Requirements Regulation or CRR (575/2013).
EC Rule on Contractual Recognition of Write-Down and Conversion Powers
EC published the Implementing Regulation 2021/1751, which lays down implementing technical standards on uniform formats and templates for notification of determination of the impracticability of including contractual recognition of write-down and conversion powers.
