Chinas TLAC policy framework is coming! The four major banks are facing a capital gap of nearly 3 trillion yuan

category:Finance
 Chinas TLAC policy framework is coming! The four major banks are facing a capital gap of nearly 3 trillion yuan


For a long time, Chinas regulators and bank managers have listed banks as a kind of affirmation, which has a great impact on the rapid promotion of the importance of the banking system. We should gradually change this concept and re-examine the comprehensive operating costs of banks. Xiong Qiyue, a senior researcher at the Bank of China Research Institute, told reporters of the 21st century economic report on September 30.

Xiong Qiyue said that the release of the draft will have a certain impact on the asset liability structure, business direction, capital utilization efficiency and innovation of capital replenishment tools of relevant banks. In terms of capital replenishment, according to the static calculation of the balance sheet data of the four major banks at the end of 2019, in order to meet the above requirements in 2025, the capital gap faced by the four major banks will be about 3 trillion yuan.

What is the TLAC policy framework?

In November 2015, the financial stability Council (FSB) issued the total loss absorbing capacity clause for g-sibs. According to the total loss absorptive capacity clause, the size of TLAC instruments of g-sibs in non emerging market economies must reach 16% of risk weighted assets and 6% of the denominator of leverage ratio from 2019 at the latest, which will be increased to 18% and 6.75% respectively from 2022.

Therefore, the implementation of TLAC rules depends on the formulation of detailed and specific implementation plans by national regulatory authorities. According to the central banks China financial stability report (2019), at present, the final implementation plan of TLAC in the United States, the European Union, the United Kingdom, Switzerland, Japan and Canada has been officially released.

As a member of the financial stability Council (FSB), China has actively participated in the formulation and introduction of TLAC framework, and has strived to postpone the implementation of TLAC requirements for g-sibs in emerging market economies by six years, that is, to meet the requirements respectively from 2025 and 2028 at the latest.

However, this delay clause sets a trigger condition for early compliance. Once the credit debt balance / GDP of emerging market economies exceeds 55%, their g-sibs should implement TLAC requirements within three years from the next year, which is measured in November of each year.

According to the FSB scoring criteria, ICBC, BOC, CCB and ABC were included in the g-sibs list in 2019, of which ICBC and BOC were in the second group (divided into five groups, the higher the score, the higher the number of groups, and the higher the additional requirements) China Construction Bank and Agricultural Bank of China are in the first group; Bank of communications, industrial bank, China CITIC Bank, Shanghai Pudong Development Bank, China Merchants Bank and Minsheng Bank are in the top 50, which means that these banks may be included in the future.

Chinas TLAC policy framework is coming

In addition to the above-mentioned external TLAC risk weighted ratio conditions, the draft also puts forward specific requirements for TLAC composition, satisfaction conditions, eligibility criteria for non capital debt instruments, deductions, supervision and inspection, and information disclosure.

In terms of TLAC composition, it is clear that 7 types of liabilities can not be included: insured deposits; demand deposits and short-term deposits with original maturity less than 1 year; derivative liabilities; debt instruments with derivative nature, such as structural notes; liabilities not arising from contracts, such as taxes payable; and in accordance with the relevant laws and regulations such as the enterprise bankruptcy law of the peoples Republic of China, it has priority over ordinary creditors rights Liabilities to be paid; liabilities that are difficult to be used for self rescue or cannot be effectively written off, written down or converted into common shares according to laws and regulations.

Capital instruments can be included in TLAC only if they meet two conditions: the residual maturity is more than one year; the core tier 1 capital issued and held directly by the resolution entity of the g-sib, and the core Tier-1 capital issued and held by a third party by the subsidiaries of the resolution entity of the g-sib can be included in the consolidated core Tier-1 of the resolution entity according to the capital regulatory provisions of the financial regulatory authorities Capital.

The draft also makes it clear that in addition to the external total loss absorptive capacity ratio stipulated in Article 14, the central bank has the right to put forward more prudent requirements for a single bank to ensure that it has sufficient loss absorption capacity; the central bank shall supervise and inspect the total loss absorption capacity of global systemically important banks in accordance with the law, and conduct non capital debt instruments for total loss absorption capacity To manage the issue of.

In addition, Article 16 of the draft proposes that commercial banks recognized as global systemically important banks before January 1, 2022 shall meet the relevant external TLAC ratio requirements; and commercial banks recognized as global systemically important banks after January 1, 2022 shall meet the relevant external TLAC ratio requirements within three years after being identified.

In Chinas financial stability report (2019), the central bank said that it is urgent for Chinas g-sibs to implement TLAC framework. Relevant departments should work closely to promote the early introduction of TLAC rules, and take comprehensive measures to conduct systematic research and design, so as to create favorable conditions for Chinas g-sibs to meet the standards on time.

The introduction of g-sibs assessment framework and regulatory measures has had a profound impact on the global banking industry. For Chinese funded g-sibs, with the changes in the business environment of domestic and foreign banking industry, too fast score growth may bring higher risk and uncertainty on the one hand, and also mean higher regulatory and compliance costs. Xiong Qiyue told reporters of the 21st century economic report.

Specifically, Xiong Qiyue believes that on the one hand, high systemic importance score means larger scale, more frequent cross-border behavior and higher degree of complexity, irreplaceable and relevance, which will have a greater impact on the sound operation of large banks. It is necessary to clarify the functional orientation of interbank, off balance sheet and derivatives business, and to carry out comprehensive and international development based on long-term deep cultivation of main business.

On the other hand, the capital base of Chinese funded g-sibs is relatively weak, so we should strengthen the development of light capital business and increase the proportion of non interest income; on the basis of maintaining the stability of asset quality, we should improve the use efficiency of internal rating method and reduce the capital occupation; we can make full use of domestic and foreign markets, increase the issuance scale of perpetual bonds, preferred shares, secondary capital instruments, and research and issue qualified TLAC Tools to supplement TLAC capital.

A person from the credit management department of a large bank said that important is not necessarily excellent. For Chinas banking industry, the next stage of development should be changed from comprehensive expansion to selective expansion, and the growth of on balance sheet and off balance sheet assets should be appropriately controlled; business models and product lines should be further enriched, and payment and clearing, asset management, securities underwriting, international business and other aspects should be improved We should continue to control the correlation and business complexity at a lower level and reduce the overall risk level. In the draft, the central bank and the China Banking and Insurance Regulatory Commission said that in the long run, the implementation of TLAC management will further improve the risk handling mechanism of Chinas commercial banks, which is of positive significance in improving the risk resistance ability of large commercial banks, strengthening market constraints, and enhancing the stability of the financial system. It will help expand the types of active liabilities of commercial banks and improve Chinas direct financing ratio Third, promote the development of multi-level capital market. Extended reading foreign media: China is ready to launch an antitrust investigation on Google Android system in the United States and spend 44 billion yuan to purchase EUV lithography machine? TSMC: dont comment on market rumors Li Keqiang: unswervingly deepen reform and stimulate market vitality and social creativity_ NF5619

A person from the credit management department of a large bank said that important is not necessarily excellent. For Chinas banking industry, the next stage of development should be changed from comprehensive expansion to selective expansion, and the growth of on balance sheet and off balance sheet assets should be appropriately controlled; business models and product lines should be further enriched, and payment and clearing, asset management, securities underwriting, international business and other aspects should be improved We should continue to control the correlation and business complexity at a lower level and reduce the overall risk level.

In the draft, the central bank and the China Banking and Insurance Regulatory Commission said that in the long run, the implementation of TLAC management will further improve the risk handling mechanism of Chinas commercial banks, which is of positive significance in improving the risk resistance ability of large commercial banks, strengthening market constraints, and enhancing the stability of the financial system. It will help expand the types of active liabilities of commercial banks and improve Chinas direct financing ratio Third, promote the development of multi-level capital market.