CBIRC and PBC jointly proposed additional supervisory regulations to require systemically important banks to meet certain additional capital requirements. The systemically important banks have been divided into five groups (first to fifth) that are subject to additional capital requirements of 0.25%, 0.5%, 0.75%, 1%, and 1.5%, respectively. The additional leverage requirement is 50% of the additional capital requirement, which is met by tier 1 capital. The draft regulations further specify that PBC and CBIRC will assess the liquidity and large risk exposures of systemically important banks based on the assessment of substantial risks and make recommendations based on the assessment results. The comment period for this proposal ends on May 01, 2021.
The proposed regulations also specify requirements for recovery and resolution planning for the systemically important banks. The resolution plan would specify how a bank implements the plan to safely, quickly, and effectively dispose of when it is unable to operate continuously to ensure uninterrupted key businesses and services and avoid systemic risks. Banks that enter the list of systemically important banks for the first time shall formulate a group-level recovery and resolution plan and submit this plan by the end of August of the next year. More specifically, systemically important banks shall update the recovery plan every year, update the resolution plan every two years, and submit it to the crisis management team by the end of August. The crisis management team shall provide written opinions within two months of the date of receipt of the recovery and resolution plan. If the recovery and resolution plan is not approved, the systemically important bank shall rectify the plan within the time limit specified by the crisis management team.
The proposed regulations also highlight that a comprehensive risk management report shall be submitted to CBIRC and PBC each year, covering a comprehensive analysis of the risk status of a bank, evaluation of the effectiveness of its risk prevention and control system, asset quality reports, specific measures to improve risk management, and any other information requested by CBIRC and PBC. The draft regulations also note that, from the perspective of preventing systemic risks, PBC and CBIRC have established a special stress test working group for systemically important banks to set different stress test scenarios, specify stress test models and methods, and conduct regular review. Systemically important banks conduct stress tests to evaluate a bank’s capital planning and capital adequacy, liquidity, large risk exposure, and other risk conditions; test the feasibility of recovery and resolution plans; and propose corresponding measures for systemically important banks based on the results of the regulatory stress test requirements.
Comment Due Date: May 01, 2021
Keywords: Asia Pacific, China, Banking, Systemic Risk, Too Big to Fail, D-SIBs, Reporting, Regulatory Capital, Leverage Ratio, Recovery and Resolution, Resolution Framework, Stress Testing, Tier 1 Capital, CBIRC, Basel, PBC
Previous ArticleBoE Outlines Regulatory Treatment of Recovery Loan Scheme of UK
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.
The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.
The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.