On October 15, the People's Bank of China and the China Banking and Insurance Regulatory Commission officially issued the Provisions on Additional Supervision of Systemically Important Banks (Trial Implementation) (hereinafter referred to as the "Provisions") and the list of the first batch of 19 systemically important banks, marking the basic establishment and landing of China's systemically important bank regulatory framework, showing that the prudence of China's financial regulatory system has been further enhanced, which is conducive to further improving the quality and efficiency of domestic financial supervision, promoting integration with international financial supervision, and enhancing the stability of China's financial system. The Provisions will urge China's banking industry to further change its concept, strengthen the direction of high-quality development, effectively prevent and respond to the risk challenges brought about by the new crown epidemic and changes in the external environment, firmly adhere to the bottom line of no systemic risks, promote the sustained and steady development of the banking industry, and provide financial guarantee for the healthy and stable operation of the economy.
The concept of systemically important banks was first proposed by the Financial Stability Board (FSB). The 2008 financial crisis had a huge impact on the global economic and financial system, and a series of large financial institutions represented by Lehman Brothers went bankrupt and acquired, causing serious damage to the United States and even the global economy, and countries began to reflect on the loopholes in the original financial regulatory system. As the "main force" rushing to the front line, the position, weight and impact of systemically important banks in the banking system are irreplaceable, and their predicament will cause major damage to the wider financial system and economic activities, and the supervision of systemically important banks in various countries has been put on the agenda to effectively prevent and control the risk of financial institutions being "too big to fail".
In 2011, the FSB published the Global Systemically Important Financial Institutions (G-SIFI) Regulatory Framework and the first list of 29 global systemically important banks, and since then the latest G-SIBs list has been released every November. Within this framework, the Basel Committee (BCBS) has developed specific global systemically important bank assessment criteria and regulatory rules, and has asked countries to take this requirement into account to develop their own systemically important bank (d-sibs) assessment criteria and regulatory rules. In the first batch of 29 G-SIBS banks, only one Chinese bank was selected by Bank of China (Hong Kong stock 03988), and the number of Chinese banks shortlisted for the G-Sibs list in 2015 rose to 4. In November 2020, there were 30 banks in the latest g-sibs list, with Bank of China, Industrial and Commercial Bank of China (Hong Kong stock 01398), China Construction Bank (Hong Kong stock 00939) ranking in the second group, and Agricultural Bank of China (Hong Kong stock 01288) ranking first.
From the perspective of regulatory measures against G-SIBS, FSB and BCBS have established additional capital adequacy requirements for the banks on the list, as well as additional liquidity requirements, total loss absorption capacity and other complementary measures to reduce the moral hazard of systemically important banks, improve the ability to cope with external shocks, and enhance the soundness of the banking system. The core of the g-sibs supervision lies in the additional capital requirements, which are between 1% and 3.5% according to the different g-sibs grades, and all need to be met with core Tier 1 capital, which is essentially to increase the core Tier 1 capital adequacy ratio requirements of selected banks.
At present, the Bank of China, the Industrial and Commercial Bank of China, and the China Construction Bank are in the second group of the g-sibs list, which needs to implement the additional capital requirement of 1.5%, and the Agricultural Bank of China is in the first group, which needs to implement the additional capital requirement of 1%, which is not much "pressure" for the four banks. This is due to the fact that in accordance with the Basel III requirement of 7% for the core Tier 1 capital adequacy ratio of commercial banks, the lower capital adequacy ratios of the first and second groups of banks in the g-sibs are 8% and 8.5%, respectively, that is, the Agricultural Bank of China needs to meet 8%, and the Bank of China, industrial and commercial bank and China Construction Bank need to meet the requirements of 8.5%. However, due to the fact that the CBIRC has stricter capital adequacy requirements for domestic banks than international standards, according to the Measures for the Administration of Capital of Commercial Banks (Trial Implementation), the core Tier 1 capital requirement that domestic banks should meet is 7.5%, and according to Article 25 of the Measures, "the additional capital requirement of domestic systemically important banks is 1% of the risk-weighted assets and is met by the core Tier 1 capital", that is, the core Tier 1 capital adequacy ratio requirement of 8.5% should be implemented, which has actually reached the level of g-sibs group II requirements That is, the domestic regulatory requirements for the core first-level adequacy ratio of the four major banks have not been lower than the requirements of international systemically important banks.
China's systemically important bank regulatory framework has been gradually improved and landed China's systemically important bank regulatory framework has been gradually improved and implemented in line with international standards. Previously, the Banking and Insurance Regulatory Commission and the People's Bank of China carried out differentiated supervision of systemically important banks. The supervision of the China Banking and Insurance Regulatory Commission is mainly reflected in the additional capital requirements set forth in the Measures for the Administration of Capital of Commercial Banks (Trial Implementation); the supervision of the People's Bank of China is mainly reflected in the assessment of the mpa (macro-prudential assessment system), but it is not directly binding on banks. Compared with the international supervision of systemically important banks, the domestic regulatory requirements at that time did not well reflect the selection criteria for systemically important banks, the rigid requirements for additional capital, and the regulatory differentiation between different institutions, so the effect of implementation was discounted.
At the end of 2018, the Guiding Opinions on Improving the Supervision of Systemically Important Financial Institutions was deliberated and adopted by the Fourth Meeting of the Central Committee for Deep Reform, marking the beginning of the establishment of a regulatory framework for systemically important financial institutions in line with international standards in China; in December 2020, the Measures for the Evaluation of Systemically Important Banks were officially released, and the regulatory framework for the assessment of systemically important banks in China was further improved.
On 2 April 2021, the People's Bank of China and the China Banking and Insurance Regulatory Commission (CBIRC) issued the Provisions on Additional Supervision of Systemically Important Banks (Trial Implementation) (Draft for Solicitation of Comments) (hereinafter referred to as the Draft for Comment), which means that the regulatory framework for systemically important financial institutions has taken a key step forward. The Draft Opinion puts forward regulatory requirements for systemically important banks in terms of additional capital, leverage ratio, large risk exposure, corporate governance, recovery and disposal plans, information disclosure and data submission, and determines the specific additional capital standards under the Chinese version of the regulatory framework, laying the foundation for determining the "differentiated regulatory scheme" of different groups and types of systemically important banks after the release of the list of domestic systemically important banks. According to the "four-step" roadmap mentioned in the Drafting Instructions for Comments, the assessment and supervision of domestic systemically important banks includes four steps: issuing assessment measures, issuing additional regulatory provisions, determining the list of systemically important banks, and formulating differentiated regulatory plans.
The official draft of the Provisions released this time has not changed much compared with the main content of the Draft for Comments. The Provisions divide China's systemically important banks into five groups, which apply the additional capital requirements of 0.25%, 0.5%, 0.75%, 1% and 1.5% respectively, and the additional leverage ratio is 50% of the additional capital, which is 0.125%, 0.25%, 0.375%, 0.5% and 0.75% respectively. If the bank is identified as both a systemically important bank in China and a global systemically important bank, the additional capital requirements are not superimposed, and the principle of the two is used to determine, and the additional capital requirements are met by the core Tier 1 capital.
The first list emphasizes importance, soundness and representativeness Since 2021, although the first list of systemically important banks has not been published, the impact on the operation and risk management of the domestic banking industry has continued to emerge. Banks that are "expected" to be selected for the first batch of self-assessments, especially joint-stock banks, have begun to take into account the impact of systemically important banking supervision on their profitability when determining their risk appetite and business objectives, so as to re-examine the direction of business development, especially to plan in advance to deal with the impact of additional regulatory measures on their capital replenishment and profitability. The list of 19 systemically important banks released this time is not much different from the scope of the list previously expected by the market, and the list of shortlisted banks is in line with market expectations, but more emphasis is placed on the importance, soundness and representativeness of the selected banks.
Based on the 2020 data of each bank, the first batch of d-sibs evaluations finally determined 6 state-owned commercial banks, 9 joint-stock commercial banks and 4 urban commercial banks, and no other banking institutions such as rural commercial banks were selected. According to the system importance score from low to high, it was divided into five groups: the first group of 8, including Ping An Bank, Everbright Bank, Huaxia Bank, Guangfa Bank, Bank of Ningbo, Bank of Shanghai, Bank of Jiangsu, and Bank of Beijing, were subject to the additional capital requirement of 0.25%; the second group of 4 companies, including Shanghai Pudong Development Bank, China CITIC Bank (Hong Kong stock 00998), Minsheng Bank (Hong Kong stock 01988), postal savings bank (Hong Kong stock 01658), applied to the additional capital requirement of 0.5%; the third group of 3, including bank of Communications ( Hong Kong stock 03328), China Merchants Bank (Hong Kong stock 03968), Industrial Bank, applicable to 0.75% additional capital requirements; the fourth group of 4, including industrial and commercial bank of China, Bank of China, China Construction Bank, Agricultural Bank of China, applicable to the additional capital requirement of 1%; the fifth group of no banks to enter.
The four state-owned banks that have been selected for g-sibs have all entered the fourth group of d-sibs and should implement the additional capital requirement of 1%, but in accordance with the principle of "which is higher", the Bank of China, the Industrial and Commercial Bank of China, and the Construction Bank need to continue to implement the additional capital requirement of 1.5%, and the Agricultural Bank of China continues to implement the additional capital requirement of 1%, and the additional capital supervision requirements implemented by the four banks as a whole remain unchanged, which remains consistent with the lower limit of the capital adequacy ratio under the g-sibs standard. That is to say, the corresponding core Tier 1 capital adequacy ratio of the four banks should continue to remain above 8.5%.
The four large state-owned banks did not enter the fifth group with the highest requirements this time, and the capital adequacy ratio requirements after the implementation of additional capital requirements were comparable to the level of g-sibs, reflecting that d-sibs paid attention to international standards in terms of additional capital requirements, and at the same time paid attention to conforming to China's actual conditions, focusing on me, and prudently promoting domestic systemically important bank supervision. The additional capital requirement for the first to third groups of banks is between 0.25% and 0.75%, i.e. the core Tier 1 capital adequacy ratio is 7.75% to 8.25%.
Currently, all 19 systemically important banks meet the latest additional capital requirements without immediate capital replenishment and will not affect the ability to supply credit. In particular, the additional capital requirements that have been implemented by the first three groups of banks that have previously been selected as systemically important banks (in accordance with the previous provisions of the Measures for the Administration of Capital of Commercial Banks (Trial Implementation) and other previous provisions) have actually been reduced, for example, if the banks that should have implemented the 8.5% requirement this time enter the first three groups, they only need to implement the 7.75%-8.25% requirement.
According to the additional capital requirements of each group of banks, the capital adequacy of the selected banks can be examined. According to the core Tier 1 capital adequacy ratio data released by 18 banks in the second quarter of 2021 at the end of June (Guangfa Bank is not listed, the data for the same period is not available), 18 banks have exceeded the lower core Tier 1 capital adequacy ratio required by the third group, and 17 of the 18 banks have reached the fourth group at the same time, that is, the core Tier 1 capital adequacy ratio is not less than 8.5%, while 8.5% is expected to be basically a requirement that non-state-owned large banks do not have to meet. Therefore, the banks do not have the pressure to meet the standards for the time being. Considering that banks generally take the initiative to retain a part of the capital as a buffer on top of the regulatory requirements to avoid the capital adequacy ratio closely following the regulatory red line, if 1 percentage point is added to the 8.25% (that is, the third set of requirements), that is, the capital adequacy of the banks in the list is measured by 9.25% as the bottom line, the stress test results show that 10 of the 19 banks have not yet reached this bottom line. It can be seen that the overall capital of 19 banks has limited pressure to meet the standards, but under the premise of meeting the actual operating needs, individual banks still have capital gaps to be replenished.
Don't forget the danger, walk steadily and far. The degree of stability of systemically important banks is related to China's economic and financial security, and it is the core part of the bottom line of maintaining no systemic financial risks. The release of the list of systemically important banks and the implementation of differentiated regulatory policies will further catalyze the differentiation between different banks, although it will bring greater challenges to some banks in the short term, but the overall impact will outweigh the disadvantages. The banking industry should seize the development opportunities, further return to the roots, focus more on the main business, put risk prevention in a more important position, balance the relationship between asset growth and structural optimization, improve the level of endogenous capital replenishment, improve the efficiency of capital use, improve the level of risk mitigation, and provide a strong guarantee for business development.
This article is based on Wen Bin's research
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