CBRC issues opinions on Basel III accord

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银监会就巴塞尔协议(三)出台指导意见 CBRC issues opinions on Basel III accord
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On 27 April the China Banking Regulatory Commission (CBRC) issued the CBRC Implementation of New Regulatory Standards in China’s Banking Industry Guiding Opinions (Yin Jian Fa [2011] No. 44). Implementation of the Guiding Opinions will commence on 1 January 2012.

Background to the opinions

On 16 December 2010, the Basel Committee issued the Basel III Accord, establishing a new financial regulatory model that combined both microprudential and macroprudential elements; and greatly increased regulatory requirements in respect of the capital of commercial banks. The committee required member economies to complete the formulation and amendment of relevant regulatory legislation within two years, implement the new regulatory standards by 1 January 2013 and fully comply with the standards by 1 January 2019. The objective of the Guiding Opinions issued by the CBRC, as a member of the Basel Committee, is to construct a comprehensive set of prudential regulatory systems and arrangements that draw on Basel III, to safeguard the long-term stable operation of the PRC banking system.

Capital adequacy ratio

The Guiding Opinions revise the current two-tier categorization of regulatory capital (tier 1 capital and tier 2 capital) to a three-tier categorization, including core tier 1 capital, other tier 1 capital and tier 2 capital. They also set up a three-part capital adequacy ratio regulatory standard:

  • first, the core tier 1 capital adequacy ratio, tier 1 capital adequacy ratio and capital adequacy ratio may not be less than 5%, 6% and 8% respectively;
  • second, a countercyclical buffer must be introduced, including requiring commercial banks to measure their capital based on cross-cyclical risk parameters; a requirement to allocate a 2.5% conservation buffer; and a requirement to allocate a 0-2.5% countercyclical buffer;
  • third, a supplemental capital requirement will be added for systemically important banks, provisionally set at 1%. Once the Guiding Opinions have been implemented, under normal conditions, the capital adequacy ratio of systemically important banks and that of banks that are not systemically important will be not less than 11.5% and 10.5% respectively.

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Business Law Digest is compiled with the assistance of Haiwen & Partners. The authors can be emailed at baochen@haiwen-law.com. Readers should not act on this information without seeking professional legal advice.

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