BACKGROUND
The FSC/FSS started to revise the Regulations and Detailed Regulations on Supervision of Banking Business for domestic implementation of the Basel III rules, which will take effect in 2013.
KEY REVISIONS
1. Revision of minimum capital requirement
Minimum capital requirement for banks will be subdivided from the current 8% of the total capital into three criteria: 4.5% of common equity Tier 1, 6% of Tier 1 capital, and 8% of the total capital.
2. Introduction of capital buffer1
Banks will be required to reserve an extra capital buffer of 2.5%p in addition to the minimum capital requirement. Unlike minimum capital ratios, capital buffer is not a mandatory requirement; however, if banks fail to meet capital buffer requirement, they will be limited in dividend payment or share repurchase.
3. Revision of conditions for corrective measures to be taken and evaluation of management status
(1) Conditions for corrective measures to be taken
Currently, banks are ordered to take corrective measures depending on their equity capital ratios: management improvement recommendation for less than 8%, management improvement requirement for less than 6%, and management improvement order for less than 2% of equity capital.
With the implementation of Basel III rules, such conditions will be further subdivided into three criteria: total capital ratio, Tier 1 capital ratio, and common Tier 1 capital ratio.
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Corrective
measures |
Current |
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Proposed revision |
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Management improvement |
Less
than 8% of BIS ratio |
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1. less
than 8% of the total capital |
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2. less
than 6% of Tier 1 capital |
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recommendation |
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3. less
than 4.5% of common Tier 1 |
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Management improvement |
Less
than 6% of BIS ratio |
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1. less
than 6% of the total capital |
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2. less
than 4.5% of Tier 1 capital |
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requirement |
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3. less
than 3.5% of common Tier 1 |
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Management improvement order |
Less
than 2% of BIS ratio |
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1. less
than 2% of the total capital |
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2. less
than 1.5% of Tier 1 capital |
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3. less
than 1.2% of common Tier 1 |
(2) Evaluation of management status
Under the current evaluation system, banks’ capital adequacy is measured by total capital ratio, Tier 1 capital ratio, and equity-to-assets-ratio. Under the Basel III regime, common Tier 1 capital will be added to evaluation criteria.
Net interest margin (NIM) will be no longer an evaluation criterion.
4. Implementation timetable
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2013 |
2014 |
2015 |
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2016 |
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2017 |
2018 |
2019 |
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Minimum |
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common |
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3.5 |
4.0 |
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4.5 |
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4.5 |
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4.5 |
4.5 |
4.5 |
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Tier 1 ratio |
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(A) |
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Tier 1 |
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4.5 |
5.5 |
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6.0 |
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6.0 |
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6.0 |
6.0 |
6.0 |
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capital
ratio |
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Minimum |
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total capital |
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8.0 |
8.0 |
8.0 |
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8.0 |
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8.0 |
8.0 |
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8.0 |
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ratio (C) |
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Capital |
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0.625 |
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1.25 |
1.875 |
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2.50 |
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buffer (B) |
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Required |
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total capital |
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8.0 |
8.0 |
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9.25 |
9.875 |
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8.0 |
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8.625 |
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10.5 |
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ratio (B+C) |
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5. Revision schedule (tentative)
- Revision notice: September 27~November 6, 2012
- Review by the Regulatory Reform Committee: November 2012
- Approval by the Financial Services Commission: December 2012
FUTURE PLAN
Given that global discussions on countercyclical capital, D-SIBs, regulations on liquidity and leverage ratios are still underway, such regulations, which will be introduced as early as 2015, are not included into the proposed revision at this time.
*Please read the attached file for details.