CMF Issues Rule for Identification of Systemically Important Banks
CMF issued a regulation for the identification of systemically important banks and the determination of additional requirements for these institutions, in accordance with the international standards and the General Banking Act (LGB). To this end, CMF has incorporated Chapter 21-11 to the Updated Compilation of Rules for Banks (RAN) and has amended Chapter 12-14 of RAN. This is the fifth regulation issued by CMF according to its schedule to implement Basel III standards in Chile. CMF also published a regulatory report evaluating the impact of the regulation, along with a set of frequently asked questions (FAQ) and presentations on the regulation. The regulation will come into force on December 01, 2020.
The new regulation considers establishing a Systemic Importance Index by entity, based on four factors that reflect the local impact of its financial deterioration or potential insolvency. These factors are size, interconnection, substitutability, and complexity of the entity. Depending on the value of this index, a range is established for additional requirements according to the General Banking Act. The process of identifying systemic banks and determining the additional requirements applicable will be carried out annually. It will be based on the information to be reported by the banks for calculating the Systemic Importance Index. With information as of the end of 2019, it is estimated that six banks would be classified as systemically important and, together, they would require additional core capital of nearly USD 1.25 billion.
The results of the process of identifying systemically important banks, and their additional requirements, will be informed through a well-founded resolution with prior agreement of the Central Bank of Chile, as of March 2021. The additional requirements derived from the first application may be constituted gradually, beginning in December 2021 and ending in December 2025 at a rate of an additional 25% per year. Furthermore, interested parties can comment on the measurement file of the systemic importance index to December 02, 2020. Once the fields have been adjusted and published in the Information Systems Manual, all banks must send the information monthly to CMF within the stated timeframes. Until March 01, 2021, banks must send monthly information corresponding to 2020 for the first identification of systemically important banks.
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Effective Date: December 01, 2020
Keywords: Americas, Chile, Banking, Basel, Systemic Risk, General Banking Act, Systemically Important Bank, Regulatory Capital, CMF
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