By Kim Jae-won
The financial regulator will tighten regulations on so-called systemically important banks by increasing their capital requirement to comply with international rules.
The Financial Supervisory Service (FSS) said Thursday that 34 financial holding companies, local banks and branches of foreign lenders would be subject to the examinations whether systemically important banks or not.
“A bank or bank holding company, once considered as a domestic systemically important bank (D-SIB), will be subject to the higher loss absorbency (HLA) requirement of 1 percent, which should be met fully by common equity Tier 1,” the FSS said.
The regulator said it would require the D-SIBs to have additional loss absorbency by a quarter of 1 percent every year over the four years from 2016 to 2019.
Subsidiaries of a bank holding company identified as a D-SIB would also be subject to the same level of HLA requirement, the FSS said.
The list of 34 D-SIB candidates includes the nation’s eight bank holding companies, such as Hana, Shinhan, BNK, JB, KB, NH, DGB and SC. Five lenders ― Woori, Citibank Korea, the Korea Development Bank, the Industrial Bank of Korea and Suhyup Bank ― are also on the list.
For local branches of foreign banks, those with more than 5 trillion won of assets are included on the list. HSBC Korea is the largest among the 21 branches.
The FSS said it would explore ways to exempt some specialized banks and foreign branches from the obligation, given the nature of their operations and a Dutch case that excluded a large state-owned bank from the D-SIB list.
The announcement comes after the Basel Committee on Banking Supervision published a regulatory framework for dealing with domestic systematically important banks in October 2012 to minimize the impact of a D-SIBs’ failure on the domestic economy. This framework required national authorities to identify D-SIBs and follow regulatory principles, including the imposition of the HLA requirement for D-SIBs.
The assessment will be based on available data at year end, and announced in the first half of the following year. In the event of a merger of financial institutions, the relevant bank or bank holding company that initially is not considered a D-SIB can be added to the list if they come to meet the criteria.