CMF Opens Public Consultation on Basel III Implementation Guidelines
Chile
3 abril 2020

On April 3, the Financial Markets Commission launched public consultations on two regulations concerning the implementation of Basel III, which aim to update the leverage ratio measurements  and specify the minimum requirements and conditions that hybrid instruments must meet in order to be considered as part of banks’ effective equity. Both consultations will be open for comments until May 29. The Commission also announced the relaxation of the management of provisions required from banks when rescheduling credit quotas.

The first regulation is about the way the ratio of core capital (numerator) is calculated to total assets (denominator) – the leverage ratio. Deductions are made from the numerator for items that lacking the effective capacity to absorb unexpected losses. For the denominator, a broader spectrum of exposures is considered.

According to the CMF, at the level of the system, the leverage ratio would be reduced by approximately one percentage point. This would not imply any non-compliance with the minimum 3% required by the Law for any institution, and would thus not have a direct impact in terms of additional capital requirements.

You can access the report on the regulations by clicking here and the presentation by clicking here

The second regulation concerns hybrid instruments used to constitute effective equity, as well as the requirements established for the issue of preference shares, bonds without fixed maturity (AT1) and subordinated bonds (T2). In addition, this regulation under consultation has a subordinate standard under consultation. 

You can access the report of the regulations by clicking here and the presentation by clicking here.

Both regulations will be in force from December 1, 2020.

Meanwhile, the Commission reported on additional transitional measures to manage provisions enabling the flow of credit to households and businesses, to mitigate the economic impact of the coronavirus pandemic. This special treatment enables them to sidestep the need to compute greater provisions due to installment payments for any facilities granted are not being made, making it easier to devise the rescheduling conditions offered by the banks to their clients.

It should be noted that banking institutions must periodically inform the CMF of the scope and impact of the rescheduling permitted.

Finally, the Circular issued by the Internal Revenue Service on the tax treatment of derivative instruments was published in the Official Gazette.

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