Chinese Financial Authorities Step up TLAC Requirements for Global Systemically Important Banks

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China’s top financial regulators have issued new rules that step up requirements for the country’s global systemically important banks.

On 30 October the “Global Systemically Important Bank Total Loss-absorbing Capacity Administrative Measures” (全球系统重要性银行总损失吸收能力管理办法) were jointly issued by the Chinese central bank, the China Banking and Insurance Regulatory Commission (CBRIC) and the Ministry of Finance (MOF), with the approval of China’s State Council.

The Measures outline the establishment of a total loss-absorbing capacity (TLAC) regulatory system, and the setting up of two regulatory indices of a risk-weighted assets ratio and a leverage ratio. The new regulatory requirements will be divided into a total of three tiers:

  1. A first tier of minimum requirements, which calls for the risk-weighted assets ratio to reach 16% and the leverage ratio to reach 6% by 2025, as well as 18% and 6.75% respectively by 2028.
  2. A second tier which calls for global systemically important banks to satisfy corresponding capital buffer regulatory requirements based on the minimum requirements.
  3. A third tier, which states that the People’s Bank of China (PBOC) and CBIRC have the right to outline prudential requirements for individual banks under necessary conditions.

The Measures also clarify definitions and qualification benchmarks for systemically important banks based on international standards, as well as the regulatory scope and regulatory entities, with PBOC, CBIRC and MOF responsible for the supervision and inspection of China’s global systemically important banks.

A PBOC official said that the new Measures are in accordance with market expectations, and that China’s systemically important banks will not come under major duress in efforts to satisfy the targets.

“This is within their operational tolerance scope, and will not affect their ability to supply credit,” said the official.

“Overall, the implementation of the Measures will have a positive impact on China’s global systemically important banks, and guide them in improving their risk disposal mechanisms and raising their stable operations level.

“It is of benefit to controlling irrational expansion and the accumulation of systemic risk, and will drive [banks] towards a more diversified, and comprehensive model.”

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