PBOC’s New Benchmarks for Systemically Important Banks Mark Start of Differentiated Regulation

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China’s top financial authorities have released new benchmarks for the identification of domestic systemically important banks.

The People’s Bank of China (PBOC) and the China Banking and Insurance Regulatory Commission (CBIRC) officially released the “Systemically Important Bank Assessment Measures (Draft Version for Solicitation of Opinions)” (系统重要性银行评估办法(征求意见稿)) on 26 November.

The Measures outline a points-based assessment system under which banking sector institutions that score more than 300 are included on an “initial list” of systemically important banks, with 30 lenders scheduled for assessment.

Banks on the initial list will then be divided into four separate groups to be subject to differentiated regulatory handling:

  • Group 1: 300 – 449 points,
  • Group 2: 450 – 559 points,
  • Group 3: 600 – 1399 points,
  • Group 4: Over 1400 points.

The assessment method will make use of four first-tier quantitative assessment indices, each with a weighting of 25%, including:

  • Scale,
  • Correlation,
  • Replaceability,
  • Complexity.

In addition to these first-tier indices the assessment system will also include a total of 13 second-tier indices.

Wen Bin (温彬), chief researcher with China Minsheng Bank, said to National Business Daily that the new measures mark the start of real differentiation in the regulatory treatment of banks in China, as opposed to the adoption of a “single slice approach” that has characterised policy in recent years.

“There is no doubt that following the implementation of the Measures, institutions included as systemically important banks will see their rush to blindly increase in scale be restrained, and banking operations will return more to their origins of servicing the real economy,” said Wen.

“Complex operations will be squeezed out, and unnecessary associations with other institutions and clients will be reduced, while the corporate management, risk management, capital management, information systems and data management of banks will become more standardised.”

Official data indicates that China’s total financial assets stand at 300 trillion yuan, of which banking sector assets are 268 trillion yuan, or 89% of all financial assets.

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