China Banking Regulatory Commission, Measures for the Administration of the Leverage Ratio of Commercial Banks

中国银行业监督管理委员会商业银行杠杆率管理办法

September 03, 2011 | BY

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First set of measures on the leverage ratio of banks.

Interpreting authority: China Banking Regulatory Commission (CBRC)

Applicability: These Measures shall apply to commercial banks established in the PRC, including wholly Chinese-owned banks, wholly foreign-owned banks and Sino-foreign joint venture banks (Article 2). Relevant matters concerning policy banks, financial asset management companies, rural cooperative banks, rural credit cooperatives, financial companies of enterprise groups, lease financing companies, automobile financing companies and consumer financing companies shall also be handled with reference to these Measures (Article 18).

The term “leverage ratio” refers to the ratio between a commercial bank's Tier 1 capital that complies with relevant provisions and the balance of its adjusted on-balance-sheet and off-balance-sheet assets (Article 3).

Main contents: Both the consolidated and unconsolidated leverage ratios of a commercial bank may not be less than 4% (Article 4). Article 7 specifies the formula for calculating the leverage ratio of a commercial bank:

leverage ratio =

Tier 1 capital – Tier 1 capital deductions

x100%

Balance of adjusted on- and off-balance-sheet assets

Systemically important banks determined by the CBRC shall meet the minimum leverage ratio requirements by the end of 2013 and non-systemically important banks shall meet the minimum leverage ratio requirements by the end of 2016 (Article 19). If the leverage ratio of a commercial bank falls below the minimum regulatory requirement, the CBRC may require the commercial bank to supplement its Tier 1 capital within a specified period of time, control the speed of growth of its on- and off-balance-sheet assets, and reduce the size of its on- and off-balance-sheet assets (Article 17).

Related legislation: PRC Law on the Regulation of the Banking Sector (Revised), Oct 31 2006; and PRC Law on Commercial Banks (Revised), Dec 27 2003

Full analysis and translation: See pages 18 and 38.

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