Regulations Governing Capital Adequacy of Commercial Banks (2004)

Publication Date: 2005
Published by: Government of the People's Republic of China
Document Type: PDF

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What determines the capital adequacy for commercial banks in China?

This document presents a regulation that aims to strengthen the supervision of capital adequacy in commercial banks to help them operate in a safe and sound manner. The document is divided into various chapters.

Chapter I contains the general provisions of the law and provides information about:

• The purpose of the regulation, its application to commercial banks, capital adequacy ratios – their calculation and measurement.

Chapter II describes the calculation and measurement of capital adequacy ratios, including:

• The scope - Financial institutions, investments and banks;
• The formulae for calculation;
• Definitions of core capital, total capital and supplementary capital;
• Deductions related to risk-weighted assets and the risk-weights for different financial institutions;
• Financial instruments that can serve to mitigate risk.

Chapter III discusses the supervisory review of capital adequacy and intervention, detailing:

• The responsibility of the senior management in meeting capital adequacy requirements;
• Reporting to the Central Bank;
• On-site examination and off-site surveillance;
• The classification of commercial banks.

Chapter IV discusses disclosure, including items that need to be disclosed and responsibility of disclosure.

Chapter V outlines supplementary provisions, emphasizing the freedom that commercial banks have to choose their methods of disclosure and the need for consistency.

The document also has a series of annexes that include:

• Definition of capital;
• Measurement of interest rate risk and the different kinds of risk;
• The objectives and strategies of risk management.