To further enhance the stability and soundness of China’s financial system, ensure sufficient loss-absorbing and recapitalization capacity in China’s global systemically important banks (G-SIBs), and forestall and defuse systemic financial risks, the People’s Bank of China (PBC), jointly with the China Banking and Insurance Regulatory Commission (CBIRC) and the Ministry of Finance (MOF), has formulated the Administrative Measures on the Total Loss-absorbing Capacity of Global Systemically Important Banks (hereinafter referred to as the Measures), which is hereby released upon approval of the State Council.
The Measures consists of seven chapters, with altogether 41 articles. The main contents are as follows. First, a total loss-absorbing capacity (TLAC) regulatory system is established, including two regulatory indicators, i.e., the risk-weighted ratio and the leverage ratio, and three levels of regulatory requirements. The first level, or the minimum requirements, is for the risk-weighted ratio and the leverage ratio to be no less than 16 percent and 6 percent, respectively, as from the beginning of 2025 and to be no less than 18 percent and 6.75 percent, respectively, as from the beginning of 2028. At the second level is capital buffer requirements, which G-SIBs shall meet in addition to the minimum requirements. At the third level is more prudential requirements, which the PBC and CBIRC are entitled to set specifically for a G-SIB as required by the circumstances. Second, TLAC is defined. In line with uniform international rules, the eligibility criteria for external TLAC instruments, as well as the order in which they absorb losses, are specified. Third, the regulators and the regulatory scope are specified. The PBC, CBIRC and MOF shall lawfully exercise regulation and inspection over the TLAC of China’s G-SIBs, and shall administrate the issuance of non-capital TLAC debt instruments according to relevant laws and regulations and their respective mandates.
As an essential step to implement the international rules on TLAC regulation endorsed by the G20 summit, the introduction of the Measures will help improve China’s institutional framework on G-SIB regulation and risk resolution and strengthen its abilities to forestall and defuse systemic financial risks. It is also significant to increasing the varieties of active liabilities of commercial banks, enlarging the share of direct financing in China, and promoting the development of a multi-tiered capital market. Going forward, the PBC, CBIRC and MOF will pick up pace to push forward the establishment of a long-term mechanism in China’s G-SIBs for TLAC management, make solid efforts to improve their abilities to guard against risks, and firmly defend the bottom line that no systemic risk should occur.
Appendix: Administrative Measures on the Total Loss-absorbing Capacity of Global Systemically Important Banks
