Friday, August 12

Evergrande. China ends the party of its systemic banks

China issued new rules that require its globally systemically important banks to strengthen the ability to absorb losses to avoid financial instability.

That is, it forces them to increase capital provisions. The changes take place in the midst of the Evergrande crisis, when the impact of real estate on local banks raises doubts.

Systematic groups must meet specific Total Loss Absorption Capacity (TLAC) targets starting in 2025, confirmed the People’s Bank of China (PBOC), the Banking and Insurance Regulatory Commission of China (CBIRC) and the Ministry of Finance. Finance in a joint statement.

China’s four major lenders, the Industrial and Commercial Bank of China, the Agricultural Bank of China, 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.

End of party

The move is aimed at improving the risk elimination mechanism of large Chinese lenders, curbing irrational business expansion and curbing the buildup of systemic risks, such as those derived from Evergrande, regulators said.

The new rules require the four banks in China to maintain a TLAC amount of at least 16 percent of risk-weighted assets as of January 1, 2025.