UPDATE 1-China toughens rules for its global systemically important banks

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BEIJING, Oct.29 (Reuters) – China on Friday issued rules requiring its global systemically important banks to strengthen their loss-absorbing capacity to avoid financial instability.

These banks are to meet specific total loss absorption capacity (TLAC) targets from 2025, said the People’s Bank of China (PBOC), the China Banking and Insurance Regulatory Commission (CBIRC) and the ministry. of Finance in a joint press release.

China’s four largest lenders – Industrial and Commercial Bank of China, Agricultural Bank of China Ltd, Bank of China, and China Construction Bank – are designated as global systemically important banks by Chinese regulators and the Financial Stability Board (FSB) based in Switzerland.

The move aims to improve the risk elimination mechanism at major Chinese lenders, control irrational business expansion and curb the build-up of systemic risk, regulators said.

The new rules require the four Chinese banks to hold a TLAC amount of at least 16% of risk-weighted assets from January 1, 2025, and the bar will be further raised to 18% from January 1, 2028.

The four systemically important lenders are also required to meet the leverage ratio requirement of 6% at the start of 2025 and reach 6.75% by the beginning of 2028.

The regulatory requirements were put in place in response to a global standard of TLAC requirements for systemically important banks, to avoid any future bailouts that would mobilize too much public resources, and to effectively address the “too big to fail” problem. Chinese regulators said.

With ongoing monitoring policies, “China’s global systemically important banks can meet these requirements under relatively low pressure … and (the requirement) will not affect their ability to provide credit,” the officials said. regulators.

(Reporting by Cheng Leng and Ryan Woo; editing by John Stonestreet and Susan Fenton)

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