PBOC Issues Assessment Measures for Systemically Important Banks to Prevent “Too Big Too Fail” Risk

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The Chinese central bank has issued new regulations on systemically important banks has part of efforts to forestall the emergence of “too big too fail” risk in the financial system.

The “Systemically Important Bank Assessment Measures” (系统重要性银行评估办法) released by the People’s Bank of China (PBOC) on 3 December are implementation by-laws for the “Guidance Opinions Concerning Improvements to the Regulation of Systemically Important Financial institutions” (关于完善系统重要性金融机构监管的指导意见) that were first issued in 2018.

According to PBOC the main contents of the new Measures include:

  1. Clarifying assessment objectives – which are the identification of China’s systemically important banks and annual issuance of a list of systemically important banks, as well as conducting differentiated regulation of systemically banks based on the list, and pragmatically maintaining financially stability.
  2. Confirming assessment methods – use of quantitative evaluation indices to calculate the systemic importance score of banks under assessment, and the issuance of regulatory decisions with reference to other quantitive and qualitative information.
  3. Confirmation of assessment procedures – the confirmation of the scope of banks for assessment on an annual basis, the gathering of data on such banks for assessment, and the issuance of a preliminary list of systemically important banks. Following regulatory decisions, this preliminary list will be adjusted and issued following confirmation by the Financial Stability and Development Commission (FDRC).

A PBOC official said that it was also giving consideration to a transitional period or phase-based satisfaction of new regulations for systemically important banks, on the basis of macro-economic conditions, the capital adequacy of banks and their ability to service the real economy.

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