China published rules on Friday that require its globally systemically important banks to strengthen the ability to absorb losses to avoid financial instability.
Those banks must meet specific Total Loss Absorption Capacity (TLAC) targets starting in 2025, said Banco Popular de China (PBOC), the China Banking and Insurance Regulatory Commission (CBIRC) and the Ministry of Finance in a joint statement.
China’s four major lenders, the Industrial and Commercial Bank of China, the Agricultural Bank of China Ltd, the Bank of China and China Construction Bank, are designated as Global Systemically Important Institutions by Chinese regulators and the Financial Stability Board ( FSB) based in Switzerland.
The move is aimed at improving the risk elimination mechanism of large Chinese lenders, curbing irrational business expansion and curbing the build-up of systemic risks, regulators said.
The new rules require the four banks in China to maintain a TLAC amount of at least 16% of risk-weighted assets as of January 1, 2025, and the bar will be raised further to 18% as of January 1. January 2028.
The four systemically important lenders must also meet the 6% leverage ratio requirement in early 2025 and reach 6.75% in early 2028.
The regulatory requirements have been implemented in response to a global standard of TLAC rules for systemically important banks, in order to avoid future bailouts that would mobilize too many public resources and effectively solve the problem of companies that are “too big to fail,” they said. Chinese regulators.
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