Regulator to issue rules on banks ‘too big to fail’

The country’s biggest banks will soon have to put up more money as buffer for possible losses, in line with international regulations that seek to curb excessive risk-taking by lenders deemed “too big to fail.”

Bangko Sentral ng Pilipinas (BSP) Assistant Governor Johnny Noe E. Ravalo said that new rules covering “systemically important financial institutions” were ready for the Monetary Board’s approval and would be issued “soon.”

“We have the draft memorandum already. We should go up to the [Monetary Board] soon for implementation,” Ravalo told the Inquirer in an interview. Ravalo said these draft rules have already been “exposed” to the banking industry.

The new rules will divide the country’s universal and commercial banks into three buckets depending on their importance to the overall health of the financial system. Smaller banks will be put in so-called “bucket zero,” where no extra capital charges are required.

Meanwhile, Ravalo said regulators would require banks put in buckets one and two to have higher capital adequacy ratios (CAR) than their smaller peers. Banks in buckets one and two will be given a year to comply with the new regulations.

Rules on these domestic systemically important banks (DSIB) are in line with international Basel III regulations, which were formed in response to the 2008 global financial crisis.

Under the final draft of the rules, which still have to be approved by the BSP’s policymaking Monetary Board, banks in the DSIB buckets will have to put up an extra 1.5 to 2.5 percent of capital relative to risk-weighted assets.

All major banks are currently required to maintain a CAR of 10 percent. Ravalo said the country’s largest banks should have no problem complying with the new rules, noting that the industry’s capitalization levels were much higher than regulatory requirements.

Latest data showed at the end of June, the industry’s capital adequacy ratio (CAR) stood at 17.98 percent on a solo basis. On a consolidated basis, or with their subsidiaries, the sector’s CAR stood at 19.24 percent.

These ratios are better than the 17.75-percent CAR on a solo basis and 18.89 percent on a consolidated basis for banks recorded in March 2013.

The Bank for International Settelments (BIS) Basel Committee, which sets guidelines for banking regulations around the world, has mandated that rules on DSIBs be implemented by 2016.

BDO Unibank, Metrobanks and Bank of the Philippine Islands (BPI), the country’s three largest banks, are all rated at “investment grade” by the world’s three credit-rating agencies. Collectively, the three banks corner nearly 50 percent of the Philippine banking industry’s assets.