CBIRC Revises Rules for Bank Failures

Caixin: China’s Regulator Revises Rules on Banks’ Capital Replenishment Tools

China’s banking regulator clarified criteria for innovative capital instruments for commercial banks, which are under increasing capital pressure following a national deleveraging campaign.

In a guideline issued Friday, the China Banking and Insurance Regulatory Commission (CBIRC) laid out the capital loss absorption sequence for different classes of capital instruments, addressing questions such as which get paid first between holders of perpetual bonds and preferred stock in case of a liquidation.

Under the CBIRC’s rules, perpetual bonds and preferred stock will be paid at the same time as they are both tier-1 capital replenishment tools. The commission ruled that when a trigger event occurs, all of the same class of capital instruments shall initiate a write-down or conversion at the same time in proportion to the total amount of capital instruments of that class, before the write-down or conversion of the next level of capital instruments.