On December 3, the peoples Bank of China and the China Banking and Insurance Regulatory Commission jointly issued the measures for the evaluation of systemically important banks (hereinafter referred to as the assessment measures), which officially came into effect after the public solicited opinions from the public in November last year. The assessment method will be formally implemented from January 1, 2021.
Compared with the draft, there is only one obvious change in the evaluation method, that is, the threshold for the score of systemically important banks is lowered from 300 to 100, and banks with a score of 100 are included in the initial list of systemically important banks. According to the score of system importance, the group was increased from 4 groups to 5 groups, and differentiated supervision was implemented.
The most significant change brought about by the above-mentioned adjustment is that more banks will be included in the initial list of systemically important banks. It is worth noting that the importance of being included in the initial list is not equal to being included in the initial list. According to the evaluation method, after being included in the initial list, it is necessary to make regulatory judgment combined with other quantitative and qualitative information, and comprehensively evaluate the systematic importance of participating banks. After the final list of systemically important banks is determined by the financial stability and Development Commission of the State Council, it shall be jointly issued by the peoples Bank of China and the China Banking and Insurance Regulatory Commission.
The assessment measures is the first supporting detailed rules issued after the guidance on improving the supervision of systemically important financial institutions (hereinafter referred to as the guidance) issued by the one bank, two sessions in November 2018. The assessment method is in line with the international regulatory trend. Once it is included in the systemically important banks, it means that the burden on them will be heavier. This is mainly reflected in the fact that there will be additional and more stringent special regulatory requirements to avoid blind expansion in daily operation; meanwhile, in case of emergency, special disposal mechanism should be formulated to ensure that systemically important financial institutions can be handled safely, quickly and effectively in case of business failure, so as to ensure that key business and services are not interrupted, and prevent the problem of too big to fail.
Comply with international regulatory trend
The introduction of the list of systemically important banks in China is in line with market expectations, which is also in line with the international regulatory trend. Since the international financial crisis, strengthening the supervision of systemically important financial institutions and preventing the problem of too big to fail has become an important part of the global financial regulatory reform. Since 2011, the financial stability Council has issued a list of global systemically important banks (g-sibs) every year, and has formed a relatively clear regulatory policy framework. According to the framework guidelines issued by the Basel Committee on banking supervision, countries have also established a regulatory policy framework for domestic systemically important banks (d-sibs) in light of their own reality.
It is understood that among the 27 member countries of the Basel Committee on banking supervision, most of them have established their own list of systemically important financial institutions and regulatory measures. Chinas exploration in this area is relatively slow. In November 2018, the peoples Bank of China, the China Banking and Insurance Regulatory Commission and the China Securities Regulatory Commission jointly issued the guiding opinions, which defined the overall institutional framework for the assessment, identification, additional supervision and recovery and disposal of systemically important financial institutions in China. Considering that the banking industry plays an important role in Chinas financial system, industrial and Commercial Bank of China, Agricultural Bank of China, and China Construction Bank have all been selected into the list of global systemically important banks (g-sibs), while the assessment of domestic systemically important banks is carried out first.
It is worth noting that according to the guidance, Chinas systemically important financial institutions cover banking, securities, insurance, and other systemically important institutions engaged in financial business recognized by the financial commission. For example, some Internet giants should also be included in the list of systemically important financial institutions. However, there is no precedent to include the securities industry and the institutions engaged in financial business.
What will be the impact on banks after being included in the list?
The methods of evaluating systemically important banks in the world are more mature, and there are ready-made experiences for our country to learn from. The evaluation method, evaluation scope, evaluation process and work division of Chinas systemically important banks are defined in the evaluation measures. The evaluation index system of Chinas systemically important banks is established from four dimensions of scale, relevance, substitutability and complexity.
According to the evaluation method, the specific evaluation process is as follows: first, the CIRC makes data submission template and data filling instructions according to the measures every year, and the participating banks fill in and submit the data of the previous accounting year before the end of June of each year. After completing the data collection, the cbcirc calculates the system importance score of the participating banks, and the banks with a score of 100 are included in the system Initial list of sex banks. Then, combined with other quantitative and qualitative information to make regulatory judgment, comprehensively evaluate the systematic importance of participating banks. The final list of systemically important banks shall be jointly issued by the peoples Bank of China and the China Banking and Insurance Regulatory Commission after being determined by the financial commission.
The head of relevant departments of the central bank and the China Banking and Insurance Regulatory Commission said that after the release of the evaluation measures, the central bank will work with the CIRC to formulate additional regulatory requirements for systemically important banks. It is planned to put forward regulatory requirements for systemically important banks from the aspects of additional capital, leverage ratio, large amount of risk exposure, corporate governance, recovery and disposal plan, information disclosure and data submission, etc. in addition, it will establish an early correction mechanism to promote systemically important banks to reduce complexity and systemic risks, establish and improve the internal capital restraint mechanism, and enhance the ability of banks to resist risks and absorb losses Ability, improve self-help ability, prevent the risk of too big to fail.
What changes will the inclusion of d-sibs bring to banks? The most intuitive impact will be the further increase of capital replenishment pressure, which may lead to the adjustment of banking business structure in the long run.
Xiong Qiyue, a researcher at the Research Institute of Bank of China, told the Chinese reporter of securities times and securities companies that the most direct impact on banks after being included in the d-sibs list is from capital. Because the regulation has additional capital requirements for d-sibs, and the additional capital requirements should be met by the core tier one capital. The supplement of core tier one capital mainly relies on the endogenous channel of banks own profit retention, which requires banks to improve their profitability. In addition, from the perspective of international practice, some overseas banks have reduced regulatory costs by self rating in order to alleviate their own pressure to meet the standard of additional capital, which mainly depends on the adjustment of business structure.
In recent years, in order to reduce regulatory costs, most g-sibs have adopted the development strategy of removing peers and complexity, and at the same time, they have increased the function of financial infrastructure such as custody and clearing, and the score of system importance of g-sibs has shown a downward trend. Xiong Qiyue said, for example, under the impact of negative interest rates and sovereign debt crisis, the European banking industry is under great pressure to adjust its operation. Large banks reduce the score of system importance through the continuous optimization of business structure to reduce regulatory costs.
According to the international regulatory principles, banks included in d-sibs will also be grouped by different scores to implement differentiated supervision. According to the assessment method, the boundary values of each group are as follows:
Group 1: 100 to 299.
The second group: 300 to 449.
Group 3: 450 to 749.
Group 4: 750 to 1399.
Group 5: above 1400.
At present, the Financial Stability Board (FSB) stipulates that the admittance score for banks to become g-sibs is 130 in principle. According to the score, g-sibs were also divided into 5 groups.
Source: FSB, Bank of China Research Institute
It is worth noting that although the assessment methods put forward regulatory requirements for d-sibs from the aspects of additional capital and leverage ratio, the specific regulatory standards are not clear. According to the international practice, considering that the additional capital requirement of d-sibs is lower than that of g-sibs in most countries, China is expected to do the same. At present, only four state-owned banks in China are included in g-sibs, and the additional capital buffer requirements implemented are basically between 1% and 1.5%. It is predicted that the additional capital buffer requirements specified in China will not bring additional capital requirements burden to the four major banks.
This means that for the four major banks that have been included in g-sibs, even if they will be included in d-sibs in the future, the substantial impact will not be great. But for some joint-stock banks, policy banks and development banks, the pressure of additional capital will be relatively large.
In addition, the regulatory authorities said that in formulating and implementing the additional regulatory requirements, the central bank and the CIRC will take full account of the macroeconomic situation, bank capital replenishment demand and service to the real economy and reasonably arrange the timing of the introduction. For different groups and types of systemically important banks, according to the operating characteristics and systemic risk performance, we should implement classified policies, match differentiated additional regulatory implementation plans, and set up reasonable transitional period arrangements to ensure that the policy impact is neutral and stable and orderly implemented.
From the perspective of evaluation criteria, the evaluation method clearly states that the central bank and the cbcirc will assess the degree of systemic importance and changes of the participating banks according to the first-class indicators such as scale, relevance, substitutability and complexity. The weight of the four first level indicators is 25%. Among them, the adjusted balance of assets on and off the balance sheet is used as the quantitative index when evaluating the scale of participating banks. If a bank meets any of the following conditions, it should be included in the evaluation of systemically important banks:
1. The adjusted on and off balance sheet balance sheet balance, measured by the denominator of leverage ratio, ranks 30th among all banks.
2. It was rated as systemically important bank in the last year.
As the complexity and differentiation of domestic banking business is not high as a whole, according to the scoring standard of the evaluation methods , the index of scale has the greatest impact on bank scoring Xiong Qiyue said.
According to the ranking of the scale of assets on and off the balance sheet, it is estimated that six state-owned commercial banks, two policy banks, one development bank, more than 10 national joint-stock commercial banks and some large-scale city commercial banks will be selected. At present, there are about 75 banks included in the g-sibs sample, and only about 30 banks are finally identified as g-sibs. If we refer to this ratio, the first batch of banks to be included in the d-sibs list may not exceed 20.
Source of this article: Chen Hequn, editor in charge of securities companies in China_ NB12679