On January 27, the Financial Markets Commission (CMF, for its acronym in Spanish) launched a public consultation on two regulations related to the process to adopt the Basel III global voluntary regulatory framework on bank capital adequacy, stress testing, and market liquidity risks. The first norm, which will be in consultation until April 15, introduces a standardized methodology establishing the principles for using internal methodologies in relation to credit risk weighted assets (using the APRC). The second one refers to capital buffers and defines the procedures to calculate, implement and supervise additional capital charges to be progressively applied to Chilean banks from December 2021. The latter will remain open for comments until March 31.
Regarding the methodology for determining the APRC, the proposal defines credit risk (CR) as one wherein a debtor or banking counterpart may fail to comply with its obligations in accordance with the terms agreed. The regulatory proposal presents a standard methodology and principles to be used by banks operating in Chile when adopting internal methodologies to determine credit risk weighted assets.
The CMF estimates that APRCs would decrease by 23% compared to those calculated under the current standard, equivalent to capital savings of USD 4.5 billion. However, this margin would be offset by the inclusion of market and operational risk-weighted assets. The regulation is expected to be implemented as of December 1, 2020. Access a report on the regulations by clicking here.
The second text under consultation proposes that capital conservation buffers (CCoB) be a fixed charge equivalent to 2.5% of risk-weighted assets (RWA), net of required provisions. It defines the countercyclical capital buffer framework (CCyB) as a variable charge ranging from 0% to 2.5% of RWA, net of required provisions. Access a report of the regulation by clicking here.
The Central Bank of Chile is responsible for activating the countercyclical capital buffer framework, when it receives a favorable report from the CMF, and will determine the additional core capital requirements to be applied across the board to all banking companies incorporated or authorized to operate in Chile. The Central Bank will also explicitly define the period of time available to banks to comply with this requirement.