Administrative Measures on the Total Loss-absorbing Capacity of Global Systemically Important Banks was adopted at the fifth executive meeting of the People’s Bank of China in 2021 on May 21, 2021. Upon the approval of the State Council, the Measures is hereby promulgated and shall come into effect on December 1, 2021.
People’s Bank of China Governor :Yi Gang
China Banking and Insurance Regulatory Commission Governor: Guo Shuqing
Ministry of Finance of China Governor: Liu Kun
October 29, 2021
Administrative Measures on the Total Loss-absorbing Capacity of Global Systemically Important Banks
Chapter I General Provisions
Article 1 The Administrative Measures on the Total Loss-absorbing Capacity of Global Systemically Important Banks (hereinafter referred to as “the Measures”) are formulated, pursuant to the Law of the People's Republic of China on the People’s Bank of China, the Law of the People's Republic of China on Banking Regulation and Supervision, the Law of the People's Republic of China on Commercial Banks, the Deposit Insurance Regulation, and other laws and regulations, with a view to ensuring that Global Systemically Important Banks (G-SIBs) have sufficient loss-absorbing and recapitalization capacity available in and immediately following a resolution, thereby ensuring the continuity of critical functions, preventing and defusing systemic financial risks, and maintaining financial stability.
Article 2 The Measures are applicable to commercial banks incorporated within the jurisdiction of the People's Republic of China, and designated by the Financial Stability Board (FSB) as G-SIBs.
Article 3 The term “Total Loss-absorbing Capacity” (TLAC) mentioned in the Measures refers to the sum of capital and debt instruments of G-SIBs that can absorb losses by being written down or converted into equity in and immediately following a resolution. The term “external TLAC” refers to the loss-absorbing capacity that should be held by the resolution entities of the G-SIBs, and “internal TLAC” refers to the loss-absorbing capacity committed and allocated by the resolution entities of the G-SIBs to their material sub-groups.
The term “resolution entity” refers to a legal entity to which resolution tools will be applied in accordance with the resolution strategy for the G-SIB. A resolution entity and subsidiaries of the resolution entity form a resolution group. The term “subsidiary” refers to a financial institution either directly or indirectly invested by the resolution entity that complies with the capital rules of the China Banking and Insurance Regulatory Commission (hereinafter referred to as the CBIRC).
Article 4 The external TLAC ratios of a G-SIB shall be calculated pursuant to the provisions of the Measures.
Article 5 A G-SIB shall simultaneously comply with the requirements for external TLAC specified in the Measures and other relevant capital regulatory requirements.
Article 6 A G-SIB shall disclose information related to external TLAC pursuant to the provisions of the Measures.
Article 7 The People’s Bank of China (hereinafter referred to as the PBOC), CBIRC and the Ministry of Finance of China (hereinafter referred to as the MOF) shall, in accordance with laws and regulations, supervise and examine a G-SIB's TLAC status, and administer the issuance of non-capital TLAC debt instruments according to their respective responsibilities.
Chapter II External TLAC Ratios Requirements
Article 8 External TLAC ratios requirements are applicable to resolution groups of the G-SIBs on a consolidated basis.
Article 9 External TLAC ratios consist of the external TLAC risk-weighted ratio and external TLAC leverage ratio.
Article 10 A G-SIB shall use the following formula to calculate its external TLAC ratios:
External TLAC risk-weighted ratio = (external TLAC – regulatory deductions) ÷ risk-weighted assets × 100%
External TLAC leverage ratio = (external TLAC – regulatory deductions) ÷ balance of adjusted on- and off-balance sheet assets × 100%
Article 11 A G-SIB shall, in accordance with the provisions of Chapters III and IV of the Measures, calculate its external TLAC and deductions specified in Article 10 of the Measures.
Article 12 A G-SIB shall, respectively in accordance with the regulatory rules on capital and leverage ratio of the CBIRC, calculate its RWA and balance of adjusted on- and off-balance sheet assets specified in Article 10 of the Measures.
Article 13 A G-SIB shall meet both external TLAC ratio requirements and capital buffer (conservation buffer, countercyclical buffer, capital surcharge for systemically important banks) requirements. When calculating external TLAC risk-weighted ratio, Common Equity Tier 1 capital instruments that are provisioned to meet capital buffer requirements cannot be included in the calculation of external TLAC.
Article 14 External TLAC ratios of a G-SIB shall be subject to the following requirements:
1. External TLAC risk-weighted ratio no less than 16% from 1 January 2025, and no less than 18% from 1 January 2028;
2. External TLAC leverage ratio no less than 6% from 1 January 2025, and no less than 6.75% from 1 January 2028.
Article 15 In addition to the external TLAC ratio requirements specified in Article 14 of the Measures, the PBOC and CBIRC have the right to impose further prudential requirements to ensure that a G-SIB has adequate loss-absorbing capacity.
Chapter III Composition of External TLAC
Article 16 The following liabilities must not be included in external TLAC (hereinafter referred to as “excluded liabilities”):
1. Insured deposits;
2. Sight deposits and short term deposits with original maturity of less than one year;
3. Liabilities arising from derivatives;
4. Debt instruments with derivative-linked features, such as structured notes;
5. Liabilities arising other than through a contract, such as tax liabilities;
6. Liabilities which are preferred to common claims under the Law of the People’s Republic of China on Enterprise Bankruptcy; or
7. Any liabilities that, according to laws and regulations, cannot be written off, written down or converted into equity.
Article 17 Regulatory capital that meets the provisions of capital rules of the CBIRC, subject to the minimum remaining maturity of at least one year (or no maturity date), can be qualified as external TLAC in full amount.
Article 18 Non-capital TLAC debt instruments of G-SIBs that meet the following eligibility criteria can be qualified as external TLAC in full amount:
1. Be paid in;
2. Be unsecured;
3. Not be subject to set off or netting rights that would undermine their loss absorbing capacity in resolution;
4. Have a minimum remaining maturity of at least one year (or no maturity date);
5. Not be redeemable by the holder prior to maturity;
6. Must be issued directly by resolution entities of G-SIBs;
7. Not be redeemable by the issuing bank prior to maturity without the PBOC’s approval if the redemption would lead to a peach of external TLAC requirements;
8. Not be funded by the issuing bank or a related party over which the issuing bank can exercise control or significant influence, and not be funded by other entities whose funds are provided directly or indirectly by the issuing bank;
9. Shall meet any of the following requirements to ensure that they rank after the excluded liabilities listed in Article 16 of the Measures:
(1) Contractually subordinated to excluded liabilities on the balance sheet of the resolution entity;
(2) Junior in the statutory creditor hierarchy to excluded liabilities on the balance sheet of the resolution entity; or
(3) Issued by a holding company of the G-SIB as a resolution entity which does not have any excluded liabilities on its balance sheet that rank pari passu or junior to external TLAC instruments.
10.Issuing contracts must contain terms which permit the PBOC and CBIRC to write it down or convert it to equity in a mandatory manner in resolution. A G-SIB shall initiate the write-down or conversion to equity, given that all Tier 2 capital instruments have been written down or converted to equity.
Article 19 The deposit insurance fund managed by the deposit insurance fund management institution can be included in external TLAC. Such fund can account for an amount equivalent to 2.5% RWA of each G-SIB as an upper limit when the external TLAC risk-weighted ratio requirement is 16%, and for an amount equivalent to 3.5% RWA of each G-SIB as an upper limit when the external TLAC risk-weighted ratio requirement is 18%.
Chapter IV External TLAC deductions
Article 20 The deduction approach of capital instruments which can be included in external TLAC of the G-SIBs shall be subject to the capital rules of the CBIRC.
Article 21 A G-SIB shall deduct from its external TLAC the directly or indirectly holdings of the non-capital TLAC debt instruments issued by itself, or the capital investments deemed by the PBOC to have artificially inflated the capital position.
Article 22 Reciprocal cross holdings of non-capital external TLAC debt instruments between G-SIBs shall be fully deducted from their own Tier 2 capital respectively. Where a G-SIB makes deductions from Tier 2 capital and it does not have enough of that tier of capital to satisfy the deduction, the shortfall shall be deducted from the next higher tier of capital in proper order.
Article 23 A G-SIB shall apply the following deduction approaches to its non-significant minority investments and significant investments in the non-capital external TLAC debt instruments of other G-SIBs:
1. The term “non-significant minority investments” refers to the G-SIB’s total investments (including direct and indirect) in capital and non-capital external TLAC debt instruments of another G-SIB where the former owns less than 10% (not inclusive) of the common shares (including share premiums) of the latter.
(1) Non-significant minority investments shall be deducted from capital, unless the following conditions are met: be held in the G-SIB’s trading book; the holding period shall not exceed 30 trading days; and the holding amount is less than 5% (not inclusive) of the G-SIB’s common equity.
(2) A G-SIB shall apply the corresponding deduction approach to its non-significant minority investments in another G-SIB where the aggregate of the investments exceeds 10% of the G-SIB’s Common Equity Tier 1 capital, after deducting the investments which meet the requirements specified in Article 23.1(1). The investments in non-capital external TLAC debt instruments among non-significant minority investments shall be deducted from its own Tier 2 capital. Where a G-SIB make deductions from a particular tier of capital and it does not have enough of that tier of capital to satisfy the deduction, the shortfall shall be deducted from the next higher tier of capital in proper order.
(3) Non-significant minority investments that are not deducted from a G-SIB’s capital shall be included in the calculation of RWA under the capital rules of the CBIRC. Non-significant minority investments in the trading book shall be treated as per the rules on the calculation of market risk-weighted assets; non-significant minority investments in the banking book shall be treated as per the rules on the calculation of credit risk-weighted assets, and the risk weight of investments in non-capital external TLAC debt instruments applied to standardized approach shall be risk weighted as Tier 2 debt instruments. Whereas there are separate provisions by the CBIRC, those provisions shall prevail.
2. The term “significant investments” refers to the G-SIB’s total investments (including direct and indirect) in capital and non-capital external TLAC debt instruments of another G-SIB where the aggregate investments of the former exceeds 10% (inclusive) of the common shares (including share premiums) of the latter.
For significant investments, the investments in capital instrument shall be fully deducted from the corresponding tier of capital of the G-SIB under the capital rules of the CBIRC; the investments in non-capital external TLAC debt instruments shall be fully deducted from its own Tier 2 capital. Where a G-SIBs makes deductions from a particular tier of capital and it does not have enough of that tier of capital to satisfy the deduction, the shortfall shall be deducted from the next higher tier of capital in proper order.
Article 24 For non-G-SIBs, the investments in non-capital external TLAC debt instruments of the G-SIBs shall be included in the calculation of RWA under the capital rules of the CBIRC. The investments in the trading book shall be treated as per the rules on the calculation of market risk-weighted assets; the investments in the banking book shall be treated as per the rules on the calculation of credit risk-weighted assets, and the risk weight of such investments applied to standardized approach shall be risk weighted as Tier 2 debt instruments. Whereas there are separate provisions by the CBIRC, those provisions shall prevail.
Chapter V Supervisory Review
Article 25 The PBOC, CBIRC and MOF shall, in accordance with laws, supervise and examine a G-SIB’s implementation of the Measures, thereby ensuring that the G-SIB has sufficient loss-absorbing capacity to maintain the continuity of critical functions in resolution and not trigger systemic financial risks.
Article 26 The PBOC, CBIRC and MOF shall conduct supervisory review on a G-SIB by means of off-site surveillance and on-site examinations, which may include but not limited to the following items:
1. Assessing the G-SIB’s external TLAC management framework, including corporate governance, internal controls and TLAC planning, etc.
2. Reviewing the composition of the G-SIB’s external TLAC instruments, the methods of external TLAC ratio calculation, and thereby assessing appropriateness and accuracy of the calculation results; and
3. Organizing regular meetings of the G-SIBs cross-border crisis management group, reviewing Recovery and Resolution Plans (RRP), implementing Resolvability Assessment Process (RAP), and assessing the enforceability of external TLAC instruments.
Article 27 A G-SIB shall report to the PBOC, CBIRC and MOF the external TLAC ratios on a quarterly basis. The G-SIB shall promptly report to the PBOC, CBIRC and MOF any material events that may affect the external TLAC ratios.
Article 28 A G-SIB shall submit to the PBOC, CBIRC and MOF the implementation report of external TLAC requirements of the year within four months after the end of that year.
Chapter VI Information Disclosure
Article 29 A G-SIB shall disclose relevant information to investors and the public through open channels, with a view to ensuring the information is aggregated and publicly accessible, as well as integral, accurate and complete.
Article 30 A G-SIB shall disclose relevant information in accordance with the following requirements:
1. External TLAC ratios shall be disclosed on a quarterly basis;
2. Information concerning, but not limited to, the amount, composition and maturity of external TLAC shall be disclosed on a semi-annual basis;
3. Other disclosure matters prescribed by the PBOC and CBIRC shall be disclosed regularly as required.
Article 31 Article 30 of the Measures sets the minimum requirements on external TLAC information disclosure by a G-SIB, and the G-SIB shall, under the principle of sufficient disclosure, make timely adjustment to disclosure items according to the requirements of the PBOC and CBIRC.
Article 32 A G-SIB shall disclose external TLAC information on ad hoc basis, as well as on a quarterly, semi-annual or annual basis. The G-SIB shall make ad hoc information disclosure as soon as practicable, make the quarterly and semi-annual information disclosure within 30 business days after the end of each period, and make annual information disclosure within four months after the end of each accounting year. Where the bank is unable to make disclosure as scheduled due to exceptional reasons, it shall file an application to the PBOC and CBIRC for postponing disclosure at least 15 business days in advance.
Article 33 A G-SIB shall disclose relevant information on external TLAC pursuant to the Measures and relevant provisions of the CBIRC as of January 1, 2025.
Chapter VII Supplementary Provisions
Article 34 Articles 21, 22 and 24 of the Measures shall come into effect on January 1, 2025. Article 23 shall come into effect on January 1, 2030. From January 1, 2025 to December 31, 2029, non-capital TLAC debt instruments invested by a G-SIB to another G-SIB do not apply to capital deduction, and the G-SIB shall calculate RWA pursuant to Articles 24 of the Measures.
Article 35 Banks that have been designated as G-SIBs before January 1, 2022 shall meet the requirements of external TLAC within the timeframe as specified in the Measures. Banks that are identified as G-SIBs after January 1, 2022 shall meet the requirements of external TLAC within three years from the date of designation.
Article 36 For commercial banks established outside the People’s Republic of China and designated by FSB as G-SIBs, if the subsidiaries of the banks in the jurisdiction of the People’s Republic of China are identified as resolution entities, the management of such subsidiaries shall be analogically governed by the Measures.
Article 37 A G-SIB that enters resolution, should be allowed up to two years to meet the requirements of external TLAC again pursuant to the Measures following the date on which it exits resolution, provided that it continues to be designated as a G-SIB by FSB.
Article 38 A G-SIB which as a recovery measure comes to an agreement with its creditors to convert liabilities to equity and so completes the restruction of capital without the need of entering the resolution, shall be allowed to up to two years to meet the requirements of external TLAC again pursuant to the Measures following the date of signing by both parties, provided that it continues to be designated as a G-SIB by FSB.
Article 39 The requirements on Internal TLAC and identification standards on material sub-groups of the G-SIBs shall be prescribed separately.
Article 40 The power of interpretation of the Measures shall be vested in the PBOC, CBIRC and MOF.
Article 41 The Measures shall come into effect as of December 1, 2021.
