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
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous ArticleUS Agencies Propose to Revise Call Reports, FFIEC 101, and FFIEC 002
Next ArticleDNB Announces Several Reporting Updates in July 2020
EU published Directive 2021/338, which amends the Markets in Financial Instruments Directive (MiFID) II and the Capital Requirements Directives (CRD 4 and 5) to facilitate recovery from the COVID-19 crisis.
The Standing Committee of the European Free Trade Association (EFTA) recommended that a systemic risk buffer level of 4.5% for domestic exposures can be considered appropriate for addressing the identified systemic risks to the stability of the financial system in Norway.
In a recent statement, PRA clarified its approach to the application of certain EU regulatory technical standards and EBA guidelines on standardized and internal ratings-based approaches to credit risk, following the end of the Brexit transition.
In a recently published letter addressed to the G20 finance ministers and central bank governors, the FSB Chair Randal K. Quarles has set out the key FSB priorities for 2021.
EU published, in the Official Journal of the European Union, a corrigendum to the revised Capital Requirements Regulation (CRR2 or Regulation 2019/876).
ESAs published a joint supervisory statement on the effective and consistent application and on national supervision of the regulation on sustainability-related disclosures in the financial services sector (SFDR).
EC published a public consultation on the review of crisis management and deposit insurance frameworks in EU.
HKMA announced that enhancements will be made to the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) and the application period will be extended to December 31, 2021.
EBA launched consultations on the regulatory and implementing technical standards on cooperation and information exchange between competent authorities involved in prudential supervision of investment firms.
BoE issued a letter to the CEOs of eight major UK banks that are in scope of the first Resolvability Assessment Framework (RAF) reporting and disclosure cycle.